Log inMarket Commentary 2nd February 2021 from Charlie Hancock
| Market Commentary 2nd February 2021 |
| Equity Indices |
| UK |
| Equity indices around the globe declined last week, with heightened volatility causing a sell off in most sectors. The FTSE 100 declined by 4.30%, whilst the FTSE 250 fell by 1.79%.
Concerns around disorderly market movements in the US impacted investor sentiment last week. Members of an online forum targeted a number of stocks which were heavily shorted by hedge funds, in an attempt to manipulate the price for profit, whilst also causing losses for those with short positions. The wider market became concerned about liquidity problems, leading to declines for equity indices around the globe. Economic data for the UK was mixed last week. There was some indication of a pick up in retail sales during January, whilst the IMF lowered forecasts for economic growth in the UK during 2021. |
| Europe |
| European equity indices declined last week, with the broad FTSE All World Index – Europe ex UK falling by 3.22% and Germany’s DAX index moving 3.18% lower.
Coronavirus related concerns resulted in speculation of further national lockdowns in France and Portugal, whilst Germany announced a ban on travel from the UK, South Africa and other countries experiencing high infection rates. Italy saw continued political uncertainty, with Prime Minister Giuseppe Conte resigning. On the positive side, Germany, France and Spain reported better than expected economic growth for the final quarter of 2020, adding to hopes of the Eurozone avoiding a double dip recession. |
| US |
| The S&P 500 index fell by 3.31%, the Dow Jones Industrial Average declined by 3.27% and the NASDAQ 100 moved 3.30% lower.
Last week saw an army of retail traders target US stocks with high short interest, prompting a small number of stocks to surge across the week. Headlines around the globe reported on the developments, with video game retailer Gamestop and cinema chain AMC Entertainment amongst the main stocks targeted. The ‘short squeeze’ which took place reportedly caused heavy losses for hedge funds which had sold short Gamestop and AMC. There was widespread speculation of hedge funds selling other positions in order to cover their short positions, which contributed towards declines in equity markets. Investors were also concerned about liquidity issues, with several large brokers placing restrictions on dealing for retail clients. |
| Asia |
| The broad FTSE All World Index – Asia Pacific fell by 4.20%. China’s Shanghai Composite Index fell by 3.43% and Japan’s Nikkei 225 saw a decline of 3.38%.
The Japanese government introduced new budget measures last week, with additional spending of $185 billion to combat rising coronavirus infections. Investors in Japan may have been disappointed by the Prime Minister dismissing the idea of further government stimulus cheques. China reported strong data for the manufacturing sector last week. 2020’s industrial profits were around 4% higher than the previous year, despite the significant impact of the coronavirus pandemic during the first quarter. There was some concern about the prospect of hawkish policy from China’s central bank, with reports of the bank reducing money supply last week. This contributed to a rise in Chinese government bond yields during the week. |
| Bond Yields |
| UK |
| The 10-Year Gilt yield rose from 0.31% to 0.33% across the week. Demand for Gilts seemingly remaining steady, with no significant inflows even as investors rotated out of riskier assets. |
| Europe |
| The 10-Year German Bund yield moved slightly lower across the week, down to -0.52% from -0.51%. Despite investors selling equities during the week, there was no surge in demand for Bunds.
The 10-Year Italian government bond yield declined from 0.74% to 0.64% across the week, suggesting that investors were not particularly concerned about the current political uncertainty. It is expected that Conte will seek to form a new coalition in the coming weeks following his resignation. |
| US |
| The 10-Year US Treasury yield registered a small decline, moving from 1.09% to 1.07% across the week. Although investors were disposing of equities, it appears that Treasuries did not attract significant interest, with yields remaining above the 1% level throughout the week.
Federal Reserve chair, Jerome Powell, delivered a speech following the central bank’s regular policy meeting. Powell indicated that the bank is unlikely to be in a position to taper off asset purchases for some time. |
| Currency |
| GBP / USD – Current 1.3708 Previous 1.3686
GBP / EUR – Current 1.1287 Previous 1.1247 The Pound was relatively stable against both the US Dollar and the Euro last week, rising by 0.16% and 0.36% respectively. |
| Commodities |
| Gold |
| Gold moved 0.43% lower across the week, with the spot price falling to $1,847.65 per ounce. Although equities and assets such as high yield bonds were sold off during the week, demand for gold appeared to remain weak. Historically, investors have often increased their exposure to the precious metal when risk assets decline. |
| Oil |
| Oil prices were steady last week, with the Brent Crude spot price gaining 0.85% to reach $55.88 per barrel. There was little news flow relating to oil last week, with the futures market remaining positive on the outlook for demand to improve in the coming months. |