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Please see below ‘Markets in a Minute’ article received from Brewin Dolphin yesterday evening, which provides a global update on markets and economic recovery as we strive towards a ‘new normal’ in a post-pandemic world. 

Most major stock markets rose last week despite figures showing US inflation surged in May to its highest level in 13 years.

The S&P 500 gained 0.4% to reach a new record high of 4,247, with healthcare stocks among the strongest performers. The technology-heavy Nasdaq added 1.9% as a sharp decrease in longer-term bond yields supported growth stocks.

The European Central Bank’s announcement that it would increase its pace of asset purchases boosted the pan-European STOXX 600, which ended the week up 1.1%. The UK’s FTSE 100 added 0.9% following encouraging GDP data, whereas Germany’s Dax was flat after figures revealed an unexpected decline in industrial production and factory orders.

Over in Asia, Japan’s Nikkei was largely unchanged after GDP shrank by an annualised 3.9% in the first quarter, better than the preliminary reading of a 5.1% contraction. China’s Shanghai Composite was also flat as investors weighed a fresh outbreak of Covid-19 cases in Guangzhou against renewed talks with the US on trade and investment links.

Investors shrug off lockdown easing delay

UK and European stocks continued to rise yesterday (14 June) despite reports that the UK was due to delay the final phase of lockdown easing. Prime minister Boris Johnson confirmed the reports in a briefing held after the market closed, saying restrictions would now be lifted on 19 July – four weeks later than originally planned.

The FTSE 100 added 0.2% on Monday, with strong oil prices helping the likes of Royal Dutch Shell, while travel and leisure stocks underperformed. The pan-European STOXX 600 also gained 0.2% to trade just off record highs. Most indices remained in the green at Tuesday’s open, with the FTSE 100 adding 0.3% amid a drop in the UK unemployment rate to 4.7%.

Over in the US, investors are turning their attention to the Federal Reserve’s upcoming policy decision and press conference on Wednesday. With inflation rising and the economy improving from its pandemic-era lows, investors will be closely monitoring Fed officials’ comments for any sign that it will begin easing its monetary and fiscal stimulus.

US inflation highest since 2008

Last week’s news was dominated by the latest US inflation figures, which revealed the headline consumer prices index (CPI) accelerated to an annual rate of 5.0% in May. This was higher than the 4.7% reading expected by economists and above April’s 4.2% figure. It marked the highest reading since August 2008 and partly reflected low base effects from last year when the coronavirus pandemic was at its peak.

Core inflation, which excludes volatile items like food and energy, leaped to 3.8% year-on-year, the highest level since 1992. On a monthly basis, consumer prices rose by 0.7% in May – well above the consensus forecast of 0.4%.

US stocks rallied despite the rise, suggesting investors agreed with the Federal Reserve’s stance that the current inflationary spike is transitory in nature. Indeed, the University of Michigan’s survey of consumer sentiment revealed Americans expect prices to rise by 4.0% in 2021, down from 4.6% in the previous month’s survey. The five-toten-year inflation outlook also fell to 2.8% from 3.0%.

Stock prices were also supported by an increase in the preliminary consumer sentiment index to 86.4 in the first half of June from a final reading of 82.9 in May. The gauge of current economic conditions edged up to 90.6 from 89.4, and the measure of consumer expectations rose to 83.8, the highest since February 2020.

UK GDP rises for third month in a row

Over in the UK, investors were cheered by the latest gross domestic product (GDP) data from the Office for National Statistics. GDP is estimated to have grown by 2.3% in April, marking the fastest monthly growth since July 2020. The service sector grew by 3.4% as consumer-facing services reopened in line with the easing of Covid-19 restrictions.

GDP remains 3.7% below the pre-pandemic levels seen in February 2020, but is now 1.2% above its initial recovery peak in October 2020. Compared with April 2020, the worst month of the pandemic, monthly GDP in April 2021 is estimated to have grown by a huge 27.6%.

ECB hikes inflation forecast

Elsewhere, the European Central Bank (ECB) announced it would increase the pace of its asset purchase programme over the coming weeks, despite calls from some policymakers to start reining in its monetary stimulus. It said bond purchases would continue at a ‘significantly higher’ pace than during the first few months of the year.

“Such a tightening would be premature and would pose a risk to the ongoing economic recovery,” said ECB president Christine Lagarde, adding it was too early to discuss when the emergency programme would end.

At the same time, the central bank increased its forecast for the harmonised index of consumer prices in the eurozone from 1.5% to 1.9% for 2021 but said the index would fall to 1.4% in 2023 as energy price rises evaporated. It also increased its forecast for economic growth in the euro area to 4.6% for 2021 and 4.7% for 2022. This comes amid falling Covid-19 infections, the lifting of lockdown restrictions, and a bounce back in business activity and consumer confidence.

Please check in with us again soon for further updates and relevant content.

Stay safe.