Trade tensions between the US and Europe over subsidies to Boeing and Airbus eased. The US and the EU agreed to a four-month suspension of tariffs they imposed on each other, while the US will temporarily lift punitive tariffs on £550m worth of UK exports such as Scotch whisky and Stilton cheese.

UK

The FTSE 100 rallied 2.3% over the week.

Chancellor Rishi Sunak’s second budget extended the furlough scheme and said he would spend £65bn over the next two years supporting jobs and investment. While the chancellor acknowledged that taxes would have to rise in the longer term, he said now was not the time. However, he did announce that corporation tax would rise to 25% in 2023 and that personal tax allowances would be frozen until 2026.

Amid signs that the UK is considering relaxing its onerous listing requirements, Deliveroo announced it would list in London – the company is targeting a $10bn valuation which will make it one of the UK’s largest tech companies. The Hill review will seek to make the UK more attractive in competition for IPOs and with tighter focus on Spacs (special purpose acquisition companies that raise money from investors and list on a stock market, then look for an acquisition target to take public).

The UK provoked EU ire when it unilaterally granted Northern Irish businesses longer waivers from enhanced checks that were meant to commence on 1 April 2021.

US

The S&P 500 fell 1.3% over the week, while the tech-heavy Nasdaq dropped 4.7%. The Nasdaq has now lost around 10% over the last two weeks, the sharpest sell-off since the pandemic-related slump in early 2020.

Tesla has been particularly badly hit, with shares closing below $600 for the first time in more than three months. Tesla has now lost around 30% since its January announcement that it had decided to invest in Bitcoin.

The US Senate approved Joe Biden’s $1.9 trillion stimulus plans.

Federal Reserve chair Jay Powell reiterated the US central bank would be “patient” in raising interest rates given a temporary rise in inflation. Financial markets were unsettled given the lack of any detail on how he would address the recent rise in long-term bond yields.

Non-farm payrolls rose by a stronger-than-expected 379,000 in February as virus cases dropped in the US, the vaccination campaign gained steam and restaurants and bars brought back workers. The news reignited investor concerns of resurgent inflation.

The unemployment rate eased from 6.3% to 6.2%.

Europe

The FTSEurofirst 300 gained 1.0% over the week.

Europe’s manufacturers remain a bright spot even as lockdowns are extended to contain new COVID-19 infections. The eurozone manufacturing purchasing managers’ index (PMI) hit a three-year high of 57.9, up from 54.8 in the previous month. Italy’s manufacturing PMI rose to a three-year high of 56.9 in February, compared to 55.1 in January, while Spain’s manufacturing PMI rose to a seven-month high of 52.9, up from 49.3 in January. German and French manufacturing PMIs also beat flash forecasts, rising to their highest levels since January 2018. However, the increase in activity added to pressure on supply chains. Suppliers’ delivery times lengthened to the greatest extent since the height of the pandemic last April. Meanwhile, input prices rose at the fastest pace since 2011 as a result of the shortages, with factories in Spain raising their prices at the fastest rate since June 2018.

Germany, France and Sweden rolled back on their earlier decisions to not recommend the AstraZeneca/University of Oxford vaccine for those aged over 65. The reversals follow real-life evidence of the vaccine’s efficacy in the UK.

Japan

The Nikkei 225 eased 0.4% over the week.

Pacific Basin

The Chinese authorities set a target of “above 6%” for economic growth in 2021.

China’s top banking regulator has warned of the risk of bubbles in international markets and within the country’s own real estate sector, in the latest sign of mounting concerns over elevated global asset prices.

Australia’s central bank doubled the size of its regular bond purchases following a sharp sell-off in the country’s sovereign debt. The news sent Australia’s 10-year bond yield tumbling almost 0.25 basis points to 1.67%, having traded as high as 1.93% recently.

Emerging Markets

Investors pulled money from emerging market stocks and bonds, ending a sustained streak of inflows, amid fears of higher US interest rates.

The Reserve Bank of India launched a bond-buying effort designed to put a ceiling on Indian bond yields at 6% in nominal terms.

Brazil’s economy grew 3.2% in the fourth quarter of 2020, taking its contraction over 2020 to 4.1%. This makes the country one of the most resilient in Latin America, thanks to a massive stimulus package – although this has raised concerns over the sustainability of the debt burden.

Bonds

The yield on the 10-year US Treasury bond closed the week at 1.56%, having reached a one-year high of 1.62%, while the 10-year German Bund yield ended at -0.30%.

In the US, the five-year break-even rate, a measure of investors’ medium-term inflation expectations, rose to 2.5% for the first time since 2008.

Commodities

Oil prices rallied after OPEC and its allies decided against introducing large increases to their output. Brent crude rose to almost $70 a barrel.

Gold fell to an eight-month low of just above $1,700 an ounce as signs of a global economic recovery and rising bond yields dented the appeal of the precious metal.

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Image by Steve001 from Pixabay