Global Markets Update – Monday 10 May 2021

Vaccines

The US administration indicated it would support a suspension of intellectual property rights for Covid-19 vaccines. Such a suspension would allow any pharmaceutical manufacturer to make copies of vaccines without fear of being sued for IP infringement. The news came after Pfizer and Moderna reported soaring revenues. The idea, which has been pushed by India and South Africa in the WHO, met with a less enthusiastic response from some governments.

UK

The FTSE 100 rallied 2.3% over the week.

The Conservative Party secured a series of wins in England’s local elections and won the Hartlepool parliamentary seat for the first time ever in a by-election. However, it was a different picture in Scotland: while the SNP came up one seat short of an outright majority in the Scottish parliament, the chances of a second referendum increased after pro-independence parties (the SNP plus Scottish Greens) extended their overall lead.

The Bank of England upgraded its growth forecasts for the UK economy, saying it expected growth of 7.25% in 2021, a sharp increase from February’s forecast of 5%. This would mark the strongest year of growth in 70 years and would mean the UK economy had regained its pre-pandemic levels by the end of this year. Unemployment is also expected to peak at 5.5%, compared to a previous forecast of 7.75%. While the Bank maintained the size of its quantitative easing programme, it indicated that its asset purchases “could now be slowed somewhat” after it became the dominant buyer of UK government debt last year. However, it reiterated that “this operational decision should not be interpreted as a change in the stance of monetary policy”. Bank of England governor Andrew Bailey said that inflation may temporarily overshoot the Bank’s target in 2021.

The IHS Markit/CIPS purchasing managers’ index for the UK services sector climbed to 61 in April, up from 56.3 in March and the fastest rise in output since October 2013.

US

The S&P 500 rose 1.3% over the week, while the tech heavy Nasdaq fell 1.0%.

Of the 306 S&P 500 companies that have so far reported first-quarter earnings figures, 268 have exceeded expectations, with overall year-over-year growth of 53%, according to FactSet data.

Treasury secretary Janet Yellen said interest rates might need to rise to keep the US economic expansion from bubbling over. However, she later clarified her remarks, saying she did not foresee “an inflationary problem”. Nevertheless, her comments caused a sharp sell-off in US technology stocks, despite many large tech groups reporting surging first-quarter sales and profits.

The US economy added 266,000 jobs in April, well below the 1 million or so new job gains that had been expected. Data for March was revised down from a gain of 916,000 to 770,000. The unemployment rate edged up to 6.1%. The far weaker-than-expected data calmed fears that the US economy was overheating.

The ISM purchasing managers’ indices for April missed expectations. Manufacturing activity eased to 60.7 last month from a 37-year high of 64.7 in March, while non-manufacturing activity dropped to 62.7 in April from an all-time high of 63.7 in the previous month.

Europe

The FTSEurofirst 300 gained 1.8% over the week.

So far this quarter, companies listed on the EuroStoxx 600 have reported profit growth of almost 75%, while average earnings for the benchmark have exceeded the consensus expectation of analysts by 15%. This is the biggest “upside surprise” since the recovery from the global financial crisis more than a decade ago, according to Goldman Sachs.

The final reading of the IHS Markit eurozone manufacturing purchasing managers’ index rose to 62.9 in April. This is the highest level since 1997 and compares to a reading of 62.5 in March. Confidence among eurozone manufacturers rose to its highest level in nine years, even though they reported growing supply chain problems, which pushed up prices of many goods including chemicals, electronics, metals, plastics and paper. In response, factories raised their own prices at the fastest pace for more than two decades. Italy’s manufacturing PMI rose to an all-time high of 60.7, while Spain’s rose to 57.7, its highest level for 21 years.

Eurozone retail sales rose 2.7% over March, easing slightly from the 4.2% increase seen in February.

German retail sales increased 7.7% over the month of March. This was more than double the expected growth rate and comes after a partial lifting of coronavirus restrictions in the country.

Germany also announced it would lift restrictions on people who have been vaccinated against Covid-19.

Poland’s lower house of parliament approved plans to finance the EU’s €750bn pandemic recovery fund, overcoming divisions in the ruling coalition – the plans have still to be approved by the upper house. The aid cannot be disbursed until all 27 EU states have ratified the necessary increase in funding.

Japan

The Nikkei 225 rose 1.9% over the week.

Japan’s government extended a state of emergency in Tokyo and other prefectures until the end of May to curb a surge in coronavirus cases and give the government time to accelerate its vaccination program.

Pacific Basin

China’s exports surged 32% year on year in April last month. The recovery in the US economy spurred demand, while stalled factory production in India due to the pandemic also helped boost the global market for Chinese goods. Imports grew at the fastest pace in more than a decade, rising by 43% from a year ago.

Taiwan’s first-quarter GDP rose 8.2% year on year, its fastest pace since the third quarter of 2010.

Emerging markets

Turkey’s inflation rate increased to 17.1% in April compared to a 16.2% year-over-year increase in March.

Brazil’s central bank increased interest rates by 75 basis points and indicated a possible hike of 75 basis points at the next monetary committee meeting.

Bonds

The yield on the 10-year US Treasury bond dropped to 1.47%, its lowest level since March, on disappointing job news, before closing the week at 1.56%.

The yield on the 10-year German Bund closed the week at -0.22%.

Commodities

A ransomware cyber-attack on the largest fuel pipeline in the US caused the US government to issue emergency legislation to relax rules on fuel being transported by road. Oil prices rallied amid fears of fuel shortages.

Copper prices reached a record high of $10.361 a tonne, surpassing the previous peak set in 2011 at the height of a previous commodities boom. Tin rose above $30,000 a tonne for the first time in a decade.

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Image by torstensimon from Pixabay