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Please see below this week’s Markets in a Minute update from Brewin Dolphin – received late yesterday afternoon – 05/05/2021

Stocks mixed as Fed points to ‘froth’ in equity markets

Stock markets were mixed last week as investors weighed largely positive first-quarter earnings reports against the Federal Reserve’s latest policy meeting.

US stock markets touched record highs but ended the week mostly lower, after Fed chair Jerome Powell referred to ‘froth’ in equity markets, sparking fears that economic growth would prompt a rise in interest rates. The Dow and the Nasdaq fell by 0.5% and 0.4%, respectively, while the S&P 500 was flat. Technology and healthcare stocks were weak, whereas energy stocks were boosted by an increase in oil prices.

The pan-European STOXX 500 slipped 0.4% as investors took profits and data showed the eurozone economy shrank by 0.6% in the first quarter, thereby sliding into a ‘double-dip’ recession. The UK’s FTSE 100 managed a 0.5% gain, buoyed by encouraging housing and retail sales figures.

In Asia, Japan’s Nikkei fell by 0.7% following weaker-than-expected earnings reports, and China’s Shanghai Composite declined 0.8% amid disappointing economic data and a regulatory crackdown on technology firms.

Last week’s market performance*

  • FTSE 100: +0.45%
  • S&P 500: +0.02%
  • Dow: -0.50%
  • Nasdaq: -0.39%
  • Dax: 0.94%
  • Hang Seng: -1.22%
  • Shanghai Composite: -0.79%
  • Nikkei: -0.72%

*Data from close on Friday 23 April to close of business on Friday 30 April.

Stocks tumble on interest rate fears

Fears about rising interest rates continued into Monday, sending shares in both the US and Europe tumbling. US treasury secretary Janet Yellen told The Atlantic that a ‘modest’ increase in interest rates might be needed to make sure the economy doesn’t overheat.

Market jitters were exacerbated by a shortage of computer chips, which weighed on stocks such as Volkswagen, Siemens, Microsoft, Amazon, Facebook and Alphabet.

At the end of trading on Monday, the tech-heavy Nasdaq Composite was down by 1.9%, and Germany’s Dax recorded its biggest fall of 2021 so far, slipping by 2.5%. The FTSE 100, which had started the day in the green following strong manufacturing and mortgage borrowing data, finished the session down 0.7%.

The FTSE 100 opened 0.6% higher on Tuesday, with mining companies boosted by rising commodity prices. BHP, Glencore and Rio Tinto were all up by nearly two percentage points.

US economy continues to rebound

Last week’s economic data suggests the US economy is continuing to rebound from the Covid-19 crisis. Gross domestic product (GDP) rose by 6.4% on an annualised basis in the first quarter – above the 6.1% growth forecast by economists and the quickest first-quarter growth since 1984.

US household income surged by 21.1% in March, boosted by the latest round of stimulus cheques. Meanwhile, weekly jobless claims fell to 553,000, the lowest level since the start of the pandemic, and The Conference Board’s index of US consumer confidence in April hit its highest level since February 2020.

Despite the economic rebound, the Federal Reserve voted to keep interest rates at near zero and maintain the pace of asset purchases. However, Fed chair Jerome Powell admitted in a press conference that some parts of the market “are a bit frothy, and that’s a fact.”

He added: “I won’t say it has nothing to do with monetary policy, but also it has a tremendous amount to do with vaccination, and reopening of the economy, that’s really what has been moving markets a lot in the last few months.”

UK housing market is booming

The latest research from Nationwide reveals the UK housing market boom is continuing, with the average house price in April 7.1% higher than a year ago at £238,831. On a monthly basis, prices rose by 2.1%, marking the biggest increase since February 2004. If prices are flat over the next two months, annual growth is expected to reach double digits in June.

Robert Gardner, Nationwide’s chief economist, said housing market activity is likely to remain buoyant over the next six months, thanks to the stamp duty holiday and additional support for the labour market. However, if unemployment rises sharply towards the end of the year, as most analysts expect, “there is scope for activity to slow, perhaps sharply”, Gardner added.

Elsewhere, Britain’s biggest retailers recorded the sharpest growth in sales since 2018, according to a CBI survey for the period 26 March to 15 April. For the first time in 2021, sales volumes were viewed as good for the time of year, with consumer confidence boosted by lockdown easing in England and Wales, and progress with the vaccination roll out.

Eurozone in double-dip recession

The eurozone’s economy shrank by 0.6% in the January to March period amid a renewed surge in Covid-19 infections and corresponding lockdown restrictions. This followed a 0.7% contraction in the last three months of 2020, plunging the eurozone into a technical recession.

Germany was Europe’s worst hit major economy, logging a 1.7% contraction, although this was largely owing to one-off factors such as the end of a temporary VAT cut and poor weather. France beat expectations with growth of 0.4%, helped by strong growth in construction and a slight rebound in household consumption.

The European Monetary Union’s economic sentiment indicator soared to 110.3 in April from 100.9 in March, with confidence improving in all the surveyed business sectors and among consumers, suggesting there is hope for the months ahead.

China cracks down on tech firms

Stocks in China suffered last week as the government’s crackdown on technology firms continued. Some 13 firms, including Tencent and TikTok developer ByteDance, have been ordered to adhere to tighter regulations in their financial divisions.

The People’s Bank of China said that while internet platforms are broadening access to financial services, some are running without licences and there are ‘serious rule violations’ which are damaging consumers’ interests. Firms have been told to set up financial holding companies and draft ‘business rectification’ plans to comply with regulations.

Weekly updates like this from Brewin Dolphin help us keep up to date with what is happening in the markets.

Please continue to check back for our regular blog posts and updates.

Charlotte Ennis