Market round-up: 22-26 February

Thomas Watts


This week

In a week which saw both the Bank of England Governor and US Fed Chairman update markets, it was news from Westminster that really set the tone for the week.

A date that will now be circled on every calendar is 21 June, marking the day the country should see all limits on social distancing finally eradicated. Announcing his plans on Monday evening at a live press conference, the Prime Minister also outlined the steps along the way including dates for both schools and non-essential retailers to reopen. The UK’s consistent outperformance over its western peers over its vaccine roll out and definitive roadmap out of a crisis was a cause for cheer in the currency markets, with sterling hitting $1.42, building on an already impressive few months. For context, it is worth noting that the pound was languishing somewhere near $1.14 when lockdown measures were first introduced back in March last year. 

With companies that would immediately benefit from restrictions being lifted such as pub groups, cinemas and restaurant chains leading domestic markets, there was also reason for cheer on the continent as bullish exports and construction activity data helped the German economy to grow by a stronger-than-expected 0.3% in the final quarter of last year. 

Collapsing quicker than an England batting performance this week, was the US technology-heavy NASDAQ, slipping about 2.5% on Monday, as tech related stocks remained under pressure following a rise in US bond yields. With 10-year Treasury yields hitting a yearly high of 1.48%, investors chose to lock in profits on some high-flying growth stocks due to concerns over heightened valuations. Stocks such as Amazon, Facebook and Netflix, all star performers last year, were hit with heavy selling. Also adding pressure on US stocks was the fact that the perceived risk-free government bond now yields more that the S&P 500. The sell-off in government bonds intensified further on Thursday, leading to another sharp pullback in US equity markets. Other global equity markets were not immune from the pressure of higher bond yields with a major emerging markets index witnessing its largest drop in nearly 10 months, while UK and European markets also corrected on Friday. 

Next week

The coming week sees us transition into March and many will be hoping it is not just improving weather that we can be hopeful about.

With the world slowly emerging from the shadow of COVID-19, we should start to see an uptick in various economic indicators as parts of the economy are opened up again. Perhaps the most accurate gauge we can use is China’s, which now appears to be fully firing, having been one of the first to emerge from the crisis last year. 

Monday sees the aforementioned nation release both its manufacturing and non-manufacturing PMI data, taking on added significance, not only because China is the second largest economy in the world but hopefully the UK could be following the same trajectory in the near future. Both gauges have been firmly in expansion territory since March 2020’s nadir, showing a firm bounce back for a nation that is still transitioning from a manufacturing economy to a services-based one. 

For those watching the commodities market, the coming week should also prove vital as the Organisation of Petroleum Exporting Countries (OPEC) gets together for its monthly meeting. Attended by representatives from the 13 OPEC members and 11 other oil-rich nations, delegates will discuss a range of issues regarding energy markets and, most importantly, agree on how much oil they will produce. With oil prices having doubled since last March, rising 20% this month alone, reaching their pre-pandemic levels and then some, it is widely seen that OPEC may turn the taps back on, with more supply returning to the market. 

The first Friday of the month wraps up the week as always with US Non-Farm Payroll data. The numbers will be accompanied by Average Hourly Earnings allowing us to gauge how inflation may manifest in the world’s largest economy.  With US bond yields having risen significantly over the past few months, it is pretty clear that the market is betting on inflation making a return in the near future.

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.