Global stocks initially rallied but came off their highs to close the week little changed. However, bond yields moved higher, particularly in the UK and US.

UK

The FTSE 100 gained 0.5% over the week.

The IHS Markit/CIPS UK composite purchasing managers’ index rose to 49.8 in February, up from 41.2 in the previous month and well above market consensus. Manufacturing activity increased to 54.9, up from 54.1 in January, while services activity jumped to 49.7, up from 39.5 the previous month.

UK retail sales fell 8.2% over the month of January, double the decline seen in December.

Consumer price inflation rose at an annual rate of 0.7% in the 12 months to January 2021, up from 0.6% in December 2020 and prompting speculation that UK inflation may exceed the Bank of England’s 2% target later this year.

Rio Tinto, the world’s biggest producer of iron ore and one of the biggest beneficiaries of China’s rapid recovery from the pandemic, rewarded investors with the biggest dividend in its history. BHP also declared a record dividend after profits hit a seven-year high.

US

The S&P 500 slid 0.2% over the week.

Treasury Secretary Janet Yellen reiterated that she considered a large stimulus package to be necessary and the $1.9 trillion fiscal stimulus plan could help the economy get back to full employment in a year.

Europe

The FTSEurofirst 300 rose 0.2% over the week.

Minutes of the latest European Central Bank rate-setting meeting showed that policymakers committed to keep “a steady hand” on stimulus measures, disregarding any short-term jumps in inflation or nominal interest rates, stating that “a temporary boost to inflation should not be mistaken for a sustained increase, which was still likely to emerge only slowly”.

The flash estimate of the eurozone composite purchasing managers’ index rose slightly to 48.1 in February; while the manufacturing index rose to 57.7, up from 54.8 in January, the services index fell to a three-month low of 44.7. The German manufacturing index surged to a three-year high of 60.6, up from 57.1 in January, while the corresponding index for France rose to 55.0 from 51.6 in January. In contrast, the German services PMI fell to a nine-month low of 45.9, while the equivalent measure for France hit a three-month low of 43.6.

Japan

The Nikkei 225 rallied 1.7% over the week, rising above the 30,000 level last seen in 1990.

Japanese GDP expanded by a stronger-than-expected 3.0% in the fourth quarter of 2020, leaving output just 1% below the same period in 2019.

Pacific Basin

After being closed for the lunar new year holiday, Chinese stocks touched fresh record highs.

Emerging Markets continued

Credit rating agency Fitch raised Turkey’s sovereign credit rating outlook to stable from negative and affirmed the debt grade at BB-, citing as main driver behind the revision a more consistent and orthodox policy mix under a new economic team.

In Brazil, Petrobras shares dropped sharply amid a standoff with President Jair Bolsonaro on fuel price levels. The president announced that taxes on diesel fuel would be suspended for two months to compensate for a diesel and gasoline price increase. While Bolsonaro said he wouldn’t interfere with Petrobras’s pricing policy, he added that he considered the company’s price increase to be excessive and said it would have “consequences.”

Bonds

The yield on the 10-year US Treasury bond closed the week at 1.33%, a rise of 14bps over the week and the highest level in 12 months, on concerns that Joe Biden’s planned $1.9 trillion fiscal injection will feed through to higher inflation. Mortgage rates have also risen alongside Treasury yields, with the average rate on a 30-year mortgage hitting 2.99%, compared to an all-time low of 2.8 per cent just a week and a half ago.

The yield on the 10-year German Bund ended the week 3bps higher at -0.68%, but the 10-year UK Gilt yield rose 17bps to end at 0.69%.

Currencies

The British pound rose above $1.40 for the first time in three years, boosted by hopes that the UK’s rapid coronavirus vaccine rollout will boost economic prospects.

Commodities

Copper prices rose to almost $9,000 a tonne, their highest levels since 2011 amid hopes of economic recovery from the pandemic and a rise in demand for commodities needed to enable a global transition to green energy. Nickel rose to its highest level since September 2014, while aluminum prices hit their strongest levels since late 2018.

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Image by Gerd Altmann from Pixabay