Global Markets Update – Monday 17 May 2021

US Inflation

Global stocks suffered their worst week since February as investors were unsettled by far higher than expected inflation data out of the US.


The FTSE 100 fell 1.2% over the week.

UK GDP shrank 1.5% in the first quarter of 2021 as the country remained under strict lockdown. Nevertheless, the economy has proved relatively resilient, expanding 2.1% in March. This was the fastest monthly growth rate since August last year and leaves the economy only 5.9% smaller than it was in February 2020 before the pandemic struck.

UK consumer spending rose 0.4% in April compared to the same period in 2019. This marks the first year-on-year expansion in a year.

Diageo said it will begin returning up to £1bn to shareholders, part of a broader £4.5bn capital return programme that was paused last year because of the pandemic. The distiller said it expected organic operating profit growth to be at least 14% in the financial year ending June 2021.


The S&P 500 lost 1.7% over the week. The tech-heavy Nasdaq fell 2.3%.

Fears grew that the US economy may be overheating when headline US inflation, as measured by the consumer prices index rose to 4.2% in the 12 months to April. This was the biggest increase since 2008 and compared to a rate of 2.6% in March. Core consumer prices rose 3.0% year on year in April, the largest annual gain since 1996 and up from a rate of 1.6% in March. Prices rose for used cars, furniture and rental accommodation along with airline tickets and leisure activities.

The Federal Reserve’s vice-chair said he was “surprised” by the significantly higher inflation reading, but he still expected inflation “to return to – or perhaps run somewhat above – our 2% longer-run goal in 2022 and 2023”.

The University of Michigan’s consumer sentiment survey registered a surprise decline in May. The index fell to 82.8, down from 88.3 in April and far lower than a rise to 90.4 that had been forecast by many analysts, with many respondents indicating that they were concerned over inflation.

US retail sales unexpectedly stalled last month, recording no change, following a strong surge in March. Sales at clothing, sporting goods, hobby and book stores and online sales all declined last month, while purchases of cars and car parts and electronics increased. Spending at bars and restaurants also rose, signalling a shift in spending from goods to services.


The FTSEurofirst 300 slid 0.5% over the week.

As Covid-19 infection rates start to fall across Europe, restrictions are gradually being eased. France lifted its travel ban, Spain allowed its six-month old “state of alert” to lapse and Germany eased lockdown. Italy has also steadily loosened restrictions over the past month.

The European Commission sharply raised its economic forecasts for the coming two years, given an accelerating vaccination campaign and the prospect of economic re-opening. The EC now expects the eurozone economy to expand by 4.3% this year followed by 4.4% in 2022. This compared to previous forecasts of 3.8% growth in both years.

Speculation grew whether the European Central Bank would soon slow the pace of its asset-purchase programme after ECB policymakers said growth and inflation in the eurozone are more likely to overshoot expectations. However, one official said an expected increase in German inflation above 3% this year was unlikely to cause a tightening of monetary policy.

The Sentix index of eurozone investor sentiment surged to its highest level in more than three years in May as an accelerating vaccine roll-out and signs that infections levels may have peaked fuel hopes that lockdown measures can be relaxed.

The Zew indicator of German economic sentiment jumped by 13.7 points in May to the highest level since February 2000.


The Nikkei 225 dropped 4.3% over the week.

Pacific Basin

China’s producer price index rose 6.8% in April on a year-on-year basis. The data was stronger than had been expected and surpassed March’s increase of 4.4%.

Taiwan introduced two weeks of strict social-distancing measures as it reported more than 200 new cases in its first significant community outbreak of the virus. The country’s tech-heavy index plunged on the news.

Singapore reimposed strict social-distancing measures, banning in-person restaurant dining and limiting social gatherings to two people following a spate of new Covid-19 cases.


The yield on the 10-year US Treasury bond closed the week at 1.63%, having touched 1.69% following the release of higher-than-expected US inflation data for April. The five-year US break-even rate rose above 2.7%, its highest point in 15 years.

The 10-year German Bund yield moved closer to zero, ending the week at -0.13%.


The British pound rose above $1.40, boosted by the Conservative party’s victories in local elections and the announcement that further coronavirus restrictions will be lifted from 17 May.


Oil prices, as measured by Brent crude, rose above $69 a barrel, but later retreated as the Colonial pipeline, a critical US fuel artery, resumed operations mid-week after being shut down late last week by a cyber-attack.

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