Robust corporate earnings helped major indices hit records in April, although a surge in COVID-19 infections in Brazil and India along with signs of a slowdown in China’s manufacturing sector, sapped some of investors’ optimism.
The FTSE 100 rose 0.4% over the week.
Forecasts for UK economic growth are being revised up amid the fast vaccine roll-out, the extension of government support and the resilience shown by businesses during the latest lockdown. The economy is now expected to grow 5.4% this year, compared to the 4.2% expected in February.
Royal Dutch Shell reported a jump in first-quarter earnings, with profits rising 13%. BP’s earnings tripled and they committed to buying back shares, saying that they had reduced debt more quickly than expected.
The S&P 500 closed the week little changed, although the index touched a new record high during the week. The tech-heavy Nasdaq also reached a fresh high at the start of the week. Stocks were buoyed by robust first-quarter corporate earnings, with earnings growth expected to be the strongest since 2018.
At its latest policy meeting, the Federal Reserve offered a brighter picture of the economic recovery but showed no signs of any change to its monetary policy stance.
Treasury secretary Janet Yellen backed President Joe Biden’s plans to impose higher levies on companies and the wealthiest Americans in order to fund $2.3tn in infrastructure spending and $1.8tn in social programmes.
The US economy grew at a stronger-than-expected annualised rate of 6.4% in the first quarter of 2021, up from 4.3% in the final three months of 2020 and the second-fastest quarterly growth for the US since 2003. The strong growth was driven by a 10.7% increase in personal consumption expenditures and spending on goods. The expansion brings US output to with 1% of its pre-pandemic level.
US household income surged by a record 21.1% in March, helped by federal stimulus payments to most individuals. Consumption also soared, rising 4.2% in March in the biggest monthly gain since June 2020.
The FTSEurofirst 300 slipped 0.5% over the week.
Eurozone GDP shrank 0.6% in the first quarter. Following on from the 0.7% contraction in the final quarter of 2020, this plunged the region back into a double-dip recession. Germany’s economy shrank 1.7%, with Spanish and Italian growth also contracting, while French GDP expanded 0.4%.
German consumer prices rose 2.1% in April compared with the same month last year, taking the country’s inflation rate above the European Central Bank’s target for the whole eurozone.
The Ifo indicator of German business sentiment rose by less than expected, increasing to 96.8 in April. While this was the indicator’s third consecutive monthly increase and its highest level since June 2019, almost half of German manufacturers reported disruption to their supplies of parts or materials in the past month. This marks the highest level of disruption in 30 years, reflecting the problems caused by shortages of semiconductors, plastics, and rubber and metals, as well as issues caused by new coronavirus containment measures.
The European parliament ratified the EU’s post-Brexit trade deal with the UK.
Italy’s new prime minister Mario Draghi launched a €248 billion recovery plan. The package includes €191.5bn from the EU Recovery Fund, as well as €30.6bn from Italy’s national budget, to invest in transport infrastructure, digitalisation and the environment as well as spending on structural reforms to modernise the Italian bureaucracy. An additional €26bn has also been earmarked notably to improve transportation links between the south and the north. Spain has also finalised its €140 billion recovery plan.
The Nikkei 225 lost 0.7% over the week.
China’s official manufacturing purchasing managers’ index (PMI) missed forecasts, dropping to 51.1 in April from 51.9 in March. China blamed global chip shortages, supply chain issues and rising delivery costs for the slowdown in output. The services sector PMI fell to 54.9 in April, from 56.3 in March. The Caixin China manufacturing PMI rebounded to 51.9 in April, from an 11-month low of 50.6 in March, indicating that smaller manufacturers were bucking the broader slowdown at their larger counterparts. However, the reading remains well below levels seen through much of 2020.
Bond yields moved modestly higher over the week. The yield on the 10-year US Treasury closed at 1.63%, while the yield on the 10-year German Bund ended at -0.20%.
During the week, the EU’s accelerating vaccine roll-out prompted eurozone bond yields to move higher, with many analysts predicting that Germany’s 10-year yield would soon trade on a positive yield. Germany’s benchmark bond yield touched -0.177%, its highest level in more than a year, while Italy’s 10-year bond yield rose to a seven-month high of 0.895%.
The credit spread on CCC-rated US high yield bonds has fallen to just above 640 basis points, its lowest level in seven years. The spread has been lower on only two occasions: in 2014, just before a collapse in oil prices roiled the debt of energy companies, and in the run-up to the 2008 financial crisis.
The US dollar weakened over April, suffering four consecutive weeks of declines as investors turned more optimistic over the outlook for the global economy. In contrast, currencies with strong commodity links rebounded, with the Brazilian real one of the strongest gainers over April. The euro also rallied as an accelerating vaccine roll-out raised hopes of a swift recovery later in 2021.
Copper traded above $10,000 a tonne for the first time since 2011 while palladium, a metal used in catalytic converters to filter exhaust gases, rose to a new record of above $3,000 an ounce as Europe and China phase in stricter emissions standards. Iron ore prices also hit a record high.
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