Market round-up: 17-21 May

Thomas Watts


This week

With diners finally allowed to eat inside following an easing of social distancing restrictions, it was on the continent that investors were really dining out this week. Germany in particular, not generally known for its cuisine, saw its index hit record highs, as strong company earnings and signs the Eurozone vaccine rollout was gathering pace, gave investors plenty to digest.

For starters, the beginning of the week saw the broader pan-European STOXX 600 index also begin strongly, rising 0.2% to end just shy of a record high hit last week, led by gains in the travel and leisure index, while technology stocks also rose 0.6%. 

With restaurants re-opening their doors in conjunction with inflation worries starting to grip markets, investors shied away from BYOB (Buy Your Own Bonds) as the week progressed, prolonging a selloff in fixed income assets that had been gaining traction since February. The middle of the week saw data released showing UK inflation had more than doubled in April, as a rise in energy and clothing costs drove prices higher. A jump to 1.5% in April from 0.7% in March, means consumer prices are rising at their fastest rate since March 2020 at the outset of the pandemic. 

Stoking fears that a slower, more considered rate trajectory from the Bank of England may now be off the menu, the bluechip FTSE 100 faltered by around 1.5%. Led lower by miners and oil majors, with behemoths Shell and BP both bearing the brunt of investor selling. 

There was more positive data for the UK economy to be found for dessert, as the Office for National Statistics released its Retail Sales data. Getting dressed for dinner, a surge in clothing sales pushed the reading higher, as lockdown measures eased and non-essential shops were able to reopen.

However, there was one fly in soup for UK markets, in the form of the telecoms sector. The UK’s largest mobile operator, Vodafone, fell 8.9% on Friday after reporting a 1.2% drop in full-year adjusted earnings, citing the effect of COVID-19 on roaming revenue and handset sales as the main takeaway for its poor results. 

Next week

With the majority of Europe’s leading bourses closing in observation of Whit Monday, the beginning of the week should be relatively muted. Although a moveable feast in the Christian calendar, the coming week is still set to provide economists with plenty to sink their teeth into. 

It is on the continent we start, more specifically in Germany on Tuesday, as Europe’s largest economy releases its business climate figures. Detailing the confidence felt by manufacturers, builders, wholesalers, services and retailers within the economic powerhouse. The data is so respected due to its comprehensive sample set of about 9,000 businesses, acting as a leading indicator of economic health, commerce reacts quickly to market conditions, with changes in their sentiment providing an early signal of future economic activity such as spending, hiring, and investment.

Towards the end of the week, investor focus should shift to the US as a host of important data is released, including both GDP and employment being covered. Whilst the broadest gauge of economic activity, GDP should help us to understand how the US economy is performing, it could be the nation’s unemployment claims that may have a profound impact on financial markets, especially with inflation worries constantly in investors’ minds. 

Indeed, the week ends with the University of Michigan Inflation Expectations survey.  Detailing the percentage that consumers expect the price of goods and services to change during the next 12 months, it could well be an interesting end to the week, especially in the beleaguered bond markets.

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 May 2021.