Market Round-up: 15-19 February

Thomas Watts


This week

For those who enjoy their astronomy, February can provide a real treat, with the early to middle parts of the month providing the Alpha Centaurids meteor shower, boasting three comets every hour at its peak. 

However, for those following the currency markets this week, there was no telescope needed, even as our own star, sterling, shot towards $1.40 USD. Deriving its name from the old English steorra or "star" with the added suffix "ling", to create the meaning "little star", the currency has certainly been making its way into the Stratosphere of late.  

Serving to aid the pound’s ascent was a data release showing that the UK has been experiencing a “strong decline" in levels of Coronavirus infections since January. Imperial College London's React study found infections have dropped by almost two-thirds across England since lockdown began, with an 80% fall in London. Although largely attributable to a second lockdown, the country has seen a largely successful vaccine roll out, in which nearly 20 million people have now had their first jab, far ahead of its US and European peers.

Bets that the UK could be one of the first major economies to fully open up, led our little star to rise throughout the week, joined in part by the domestically focused  FTSE 250. However, it was blue-chip, dollar earning stocks that were sucked into a black hole, with a strong pound very much to their detriment. 

Not helping matters was a supernova from the US, which showed the number of Americans filing first-time applications for unemployment benefits unexpectedly rose last week. Initial claims for state unemployment benefits totalled a seasonally adjusted 861,000 for the week ended 13th February, compared to 848,000 in the prior week; this was also higher than economists’ consensus of 765,000. 

Such disappointing numbers provided the perfect opportunity for investors to crystalise the gains they had experienced during the beginning of the week as global markets showed their star quality by extending their winning streak to 12 days on Tuesday. Tensions in the middle east coupled with an arctic blast in Texas helped drive oil prices to their highest since January 2020 as traders fretted about possible supply constraints. 

With risk assets very much in favour, it was no surprise that perceived safe havens dipped, with gold struggling to find a footing throughout the week, whilst German Bund yields made their way higher.

Next week

With the worst of winter seemingly behind us and coming off what should be judged as one of the first weekends of spring as temperatures start to rise, the coming week could bring a sense for optimism. 

Of course, there will be only one type of climate economists will be interested in during the beginning of the week, and that will be on the continent, more specifically in Germany. Sadly, not for booking a weekend break, but for the ifo Institute’s German Business Climate figures, released on Monday and detailing the confidence felt by manufacturers, builders, wholesalers, services and retailers within the Eurozone’s largest economy. The data is very respected due to its comprehensive sample set of about 9,000 businesses, acting as a leading indicator of economic health, with changes in their sentiment providing an early signal of future economic activity such as spending, hiring, and investment. 

Switching back across the Channel, there is a host of employment data to analyse on Tuesday as unemployment numbers as well as average hourly earnings numbers are released. Both are key towards understanding the impact COVID-19 has had on a labour market ravaged by necessary lockdown and social distancing policies. Although unemployment has remained steady at around 5% recently, much of this has been masked by the government’s continued furlough scheme, which keeps many from appearing in the official figures. 

The tone of week could be set as early as Tuesday as US Federal Reserve Chair, Jay Powell, is set to testify on the semi-annual Monetary Policy Report before the Senate Banking Committee. As head of the central bank which controls short-term interest rates and has possibly the best insight into the state of the economy, he has more influence over the nation's currency value than any other person. Due to his insights, expect heightened volatility throughout his testimony, which will come in two parts, first a preprepared statement followed by an unscripted Q&A session.

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 February 2021.