With global markets once again hovering just below record highs, it was very much life in the fast lane this week, especially on the continent, as the autos sector drove further returns, with French and German bourses hitching a lift in particular.
European stocks hit new highs on Monday as shares in vehicle and car component manufacturers continued a rally that has seen the sector rise 5.3% in a week, hitting its highest level since March 2015. The strong showing far outweighed disappointing Chinese export data which had caused mining stocks to stall, having a profound impact on the commodity-heavy domestic FTSE 100, as worries about the demand for copper in particular worried investors.
Digging itself out of a hole was gold however, an asset class which has drifted lower during 2021 as the demand for safe haven assets has waned due to the success of the COVID-19 vaccine. With the yellow metal seen as a hedge against inflation, gold prices accelerated to three-month highs, rising steadily throughout the week.
With the spectre of inflation keeping global equities rangebound for much of the week, it was interesting to see that after some weaker data releases, the yield on the 10-year US Treasury had drifted down to 1.65%, well below the spike of 1.77% hit during March. Contributing to its attractiveness were fears that the Coronavirus could be making a comeback in Asia. The beginning of the week saw Singapore report its highest amount of cases in months, with neighbouring Taiwan also seeing a spike in infections.
However, Thursday did see US inflation data showing an increase of 0.6%, outpacing economists’ forecasts of 0.4%, the largest gain since June 2009. During the 12 months from May inflation has increased 5% in the US, with the news pushing the financial sector higher on the day.
It was very much planes, trains and automobiles this week as at a company level, model railway maker, Hornby, reported a significant jump in annual sales after it appears consumers rediscovered their love of hobbies during lockdown. The firm, which also sells Scalextric racing sets, announced sales of £48.5m for the year to 31 March 2021, up 28% on the year before.
Appearing to be on the right track, the firm said that more forced time indoors had led many to reconnect with toys from their youth as the model train maker announced its first profit for more than nine years.
With the beginning of the week facing a potentially subdued opening due to a bank holiday in China, it will be up to our very own Governor of the Bank of England, Andrew Bailey, to set the tone for the coming days as he addresses an online conference hosted by the Association of Treasurers on Monday.
Giving his thoughts about the state of the domestic economy, his words should hold added poignance as the UK negotiates what the bank hopes will be the last of the COVID-19 pandemic. As head of the central bank which controls short term interest rates, the Governor has more influence over the nation's currency value than most others. We can expect currency speculators to scrutinise his words as they are often used to drop subtle clues regarding future monetary policy.
With worries over a sudden spike in inflation keeping markets in check recently, US Retail Sales data could help economists’ gauge just how well the world’s largest economy is faring and if we can expect a swell in prices as demand strengthens. The data itself acts as the primary gauge of consumer spending, which accounts for the majority of overall economic activity, making it very important and one of the key pieces of data considered by central banks when formulating future rate policies.
The week will be rounded off by Andrew Bailey’s opposite number in the US, Jay Powell, who addresses the media on Thursday. With the central bank looking to let inflation ‘run hot’ for a prolonged period, the minutes from their latest discussion on rates should make for fascinating reading. The minutes themselves should act as a detailed record of the bank’s latest thoughts towards the US economy, providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in June 2021.