Please see below ‘Markets in a Minute’ article received from Brewin Dolphin yesterday evening, which provides up to date analysis on rising global stock markets.
Global stock markets rose last week as the US Federal Reserve signalled that interest rate hikes are still a long way off despite the recent rise in inflation.
The Nasdaq surged 2.8% and the S&P 500 gained 1.5%, with full approval of the Pfizer vaccine helping to offset concerns about the attack at the Kabul airport in Afghanistan. A surge in crude oil prices boosted energy stocks.
In Europe, the STOXX 600 added 0.8% amid encouraging economic data and comments from the European Central Bank that high inflation should prove temporary. The UK’s FTSE 100 also rose, despite figures showing a marked slowdown in the services sector.
Over in Asia, Hong Kong’s Hang Seng recovered from the previous week’s rout to gain 2.3%. Japan’s Nikkei also performed strongly, adding 2.3% despite another extension to the country’s Covid-19 state of emergency.
US indices reach record highs
US stocks started this week in the green amid ongoing optimism that the Federal Reserve will not immediately taper its support for the economy. The S&P 500 and the Nasdaq hit new record highs on Monday (30 August), ending the day up 0.4% and 0.9%, respectively. August was the S&P 500’s seventh consecutive month of gains – its longest winning streak since a ten-month run ending in December 2017.
The FTSE 100 struggled for direction on Tuesday, slipping 0.4% during its first trading session following the bank holiday weekend. The pan-European STOXX 600 also slipped 0.5% after data showed consumer price inflation rose by 3.0% in August – the highest level since 2011.
The FTSE 100 was up 0.8% at the start of trading on Wednesday, ahead of the release of the closely watched US ADP jobs report.
Fed clarifies position on interest rates
Last week’s economic headlines were dominated by Fed chair Jerome Powell’s speech at the Jackson Hole symposium, in which he signalled that while the central bank could begin dialling back its support for the economy later this year, interest rate hikes are still a long way off.
The Fed has repeatedly stated that it will maintain its pace of asset purchases until it sees ‘substantial further progress’ towards its goals of 2% inflation and maximum employment. On Friday, Powell said the first of these thresholds has been met, and clear progress has been made on the second.
Powell reiterated his view that the recent rise in inflation will prove temporary, and insisted that any tapering of economic support would not be a direct signal to increase interest rates. (Higher interest rates are a headwind for stocks because bond yields rise, making stocks look less attractive in comparison.)
UK business output growth slows
Here in the UK, figures suggested growth in the manufacturing and services industries slowed in August amid staff shortages and supply chain constraints. IHS Markit’s preliminary composite purchasing managers’ index (PMI) measured 55.3 in August, down from 59.2 in July. The reading was still above the 50.0 mark that separates growth from contraction, but marked the slowest expansion of output since the UK private sector returned to growth in March.
The services sector suffered the biggest loss of momentum, falling to 55.5 in August from 59.6 in July. Manufacturing output slipped to 54.1 from 57.1 the previous month.
Chris Williamson, chief business economist at IHS Markit, said: “Although the PMI indicates that the economy continues to expand at a pace slightly above the prepandemic average, there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter. Despite Covid-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.”
Eurozone economy keeps expanding
In contrast, business activity in the eurozone continued to grow in August at one of the strongest rates of the past two decades. Despite supply chain delays, the IHS Markit flash eurozone composite PMI held close to its 15-year high, slipping slightly from 60.2 in July to 59.5 in August.
Growth in the services sector overtook that of manufacturing for the first time since before the pandemic, as lockdown restrictions continued to ease. At 59.7, service sector growth was only marginally lower than July’s 15-year high. Manufacturing output also remained strong at 59.2, down slightly from 61.1 in July.
The report showed inflation in input costs and selling prices remained elevated, although the European Central Bank’s chief economist, Philip Lane, sought to allay fears by telling Reuters that recent inflationary pressures are likely to prove temporary.
China to cooperate on US auditing
Elsewhere, China’s securities regulator said it will ‘create conditions’ to cooperate with the US over how it supervises the auditing of Chinese companies, potentially signalling the end of a long-running dispute between the two countries. Previously, China refused to let US securities regulators inspect the financial audits of its USlisted companies on the grounds they could hold state secrets. Earlier this year, Chinese firms were warned they could be delisted if they refused to comply with the US audit rules, raising concerns the two countries’ financial systems could become decoupled.
According to the South China Morning Post, the China Securities Regulatory Commission hasn’t yet released details on how audits will be made more transparent.
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