Please see below for this week’s Markets in a Minute update from Brewin Dolphin:
Equities mixed as inflation offsets vaccine optimism
Global stock markets gave a mixed performance last week, as encouraging quarterly earnings and vaccine optimism were offset by concerns about rising inflation.
Most major US indices ended the week lower, with the Nasdaq down 1.57% amid an increase in longer-term interest rates. The S&P 500 also fell by 0.71%, as inflation fears returned and the yield on the benchmark ten-year Treasury note increased to its highest level in almost a year.
In Europe, the benchmark STOXX 600 ended the week up 0.21%, following news that the UK and Switzerland are set to ease lockdowns and the European Commission has signed a deal for a further 200 million vaccine doses. Gains were held back by concerns that higher inflation could result in central banks tightening monetary policy. The FTSE 100 added 0.52%, whereas Germany’s Dax declined by 0.4%.
In Asia, Japan’s Nikkei 225 topped the 30,000 milestone for the first time in more than 30 years, ending the week up 1.69% after the country started its vaccination roll out. In China, where trading reopened on Thursday following the Lunar New Year holiday, the Shanghai Composite gained 1.12% whereas the large-cap CSI 300 slipped 0.5% after the People’s Bank of China drained RMB260bn ($40.2bn) of liquidity from the financial system.
Last week’s markets performance*
- FTSE 100: +0.52%
- S&P 500: -0.71%
- Dow: +0.11%
- Nasdaq: -1.57%
- Dax: -0.40%
- Hang Seng: 1.56%
- Shanghai Composite: +1.12%
- Nikkei: +1.69%
*Data from close on Friday 12 February to close of business on Friday 19 February.
FTSE boosted by UK reopening plans
The FTSE 100 recovered from Monday’s early heavy losses to end the day up 0.18% after details of the UK’s reopening plan were revealed.
The first step will see all pupils in England return to school from 8 March, with some outdoor gatherings allowed from 29 March. Outdoor hospitality could open from 12 April, and indoor hospitality and hotels may open from 17 May. Stocks across hospitality, retail and travel all rallied on Monday, with JD Wetherspoon gaining 8.7%, Mitchells & Butlers adding 4.5% and WHSmith rising 6%.
In the US, a sell-off in technology shares led to the Nasdaq posted its biggest drop in a month, down 2.46%. The S&P 500 declined 0.77%, marking its fifth consecutive day of losses and the longest losing streak in a year, amid expectations of higher inflation.
In Hong Kong, technology stocks suffered their biggest sell-off since mid-November, dragging the Hang Seng down 1.1% on Monday. The Shanghai Composite also slipped 1.5% in its worst day since 28 January.
UK stocks opened higher on Tuesday despite figures revealing a rise in unemployment to 5.1% in the three months through December. InterContinental Hotels added 3.9%, whereas HSBC declined 1.9% after reporting a 34% drop in annual profit.
UK retail sales slump in third lockdown
The latest retail sales figures laid bare the impact the UK’s third national lockdown is having on the economy. Data released on Friday showed spending in stores and online fell by 8.2% between December and January, with all sectors other than food and online outlets affected by Covid-19 restrictions. The decline was 3% worse than analysts’ forecasts.
Separate figures from the Office for National Statistics revealed public borrowing reached £8.8bn last month – the highest January figure since modern records began.
A small increase in tax receipts was outweighed by the £20bn annual rise in spending, which included £5.1bn of expenditure on coronavirus job support schemes.
The UK’s retail sales figures are in stark contrast with those of the US, which saw sales increase by 5.3% between December and January – the highest jump in seven months and far higher than economists’ predictions. It is thought the government’s second round of stimulus cheques played a big part in boosting consumer spending.
US consumer spending to stay firm The US coronavirus relief package, which was signed in December, also restarted enhanced weekly unemployment benefits, which means household spending could stay relatively firm until the next Covid-19 recovery bill becomes law.
Once the next package is passed, there could be another boost to growth from fiscal stimulus, which is likely to coincide with more of the US economy reopening, enabling households to deploy the roughly $1.5trn in ‘excess savings’ they have built up since April last year. Indeed, the preliminary service sector PMI for February, which was released on Friday, recorded its highest readings since 2014.
PMIs beat forecasts
Last week saw positive PMIs in the UK and Europe, suggesting businesses are becoming more optimistic about a pick-up in activity over the coming months.
In the UK, the IHS Markit/CIPS flash composite PMI jumped to 49.8 in February from 41.2 in January – a bigger improvement than anticipated. Hotels, restaurants and travel companies reported steep falls in activity, but at a slower pace than in January. Financial and business services firms enjoyed modest growth.
“Although the data hint at a renewed contraction of the economy in the first quarter, business expectations for the year ahead improved to the highest for almost seven years, suggesting the economy is poised for recovery.” said Chris Williamson, IHS Markit’s Chief Business Economist.
Meanwhile, the IHS Markit flash German manufacturing PMI rose to a three-year high of 66.6, up from 57.1 in January, while the corresponding index in France gained 3.4 points to 55. A figure above 50 indicates most businesses reported growth in activity from the previous month. However, the German and French services PMIs both declined to 45.9 and 43.6, respectively.
The eurozone’s manufacturing sector is benefiting from demand from Asian countries, whereas many services businesses have been closed in an effort to control the spread of Covid-19. The pan-eurozone manufacturing PMI rose to 57.7, whereas the services PMI fell to 44.7, its lowest reading in three months.
This weekly update from Brewin Dolphin is a useful short look at the Global markets for the past week.
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Andrew Lloyd
24/02/2021