Market round-up: 22-26 March

Thomas Watts


This week

After the euphoria markets enjoyed during the first months of the year, it seems investor sentiment has turned quicker than a cargo ship in the Suez Canal, as global markets slipped to their lowest levels in weeks. 

It was on the continent where most of the issues dragging down markets were emanating as rising concerns over a third wave of COVID-19 amid slow vaccine rollouts and further lockdowns damaged sentiment. Making an about turn was Angela Merkel, who was forced to extend Germany’s lockdown until 18 April, with Germans urged to stay at home for the four days over the Easter weekend. It was oil and travel related shares which bore the brunt of investor selling as potential travel restrictions took their toll. The Institute for Economic Research would later state that Germany’s extended lockdown is delaying a recovery, cutting its 2021 growth forecast for Europe’s largest economy to 3.7% from 4.2%.

The beginning of the week saw US bourses bow to pressure as 10-year US Treasury yields carried on their march upwards after Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen spoke before a congressional hearing. In remarks prepared before the hearing, Mr. Powell said the US economic recovery had progressed “more quickly than generally expected.” With Secretary Yellen adding that Americans should expect tax hikes in the near future. “President Biden is likely to propose that we engage in long-term plans to address longstanding investment shortfalls...”

With such stern words, it was no surprise that the US dollar hovered around four-month highs as global sentiment took further hits towards the end of the week. First, an overnight selloff in Chinese technology shares spurred on by worries that they will be de-listed from US exchanges damaged sentiment, only to be followed by record numbers of COVID infections in Germany since 9 January. 

On the economic data front, it was the UK which was in focus as inflation figures showed that prices rose by 0.4% in the 12 months to February, however fell from January’s increase of 0.7%. 

According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) rose by 0.1% on a monthly basis in February 2021, compared to a 0.4% rise over the same period last year. It appears the figures were principally the result of price movements for clothing and footwear, which fell 1.5% between January and February compared to a 0.9% price rise in 2020. However, there was no dressing up the fall in sterling, as the pound sank back down to $1.37 against the dollar.

Next week

The coming week sees us transition from March into the spring month of April, where the countdown to lockdown ending really gathers pace.  Even the name of the month itself comes from the Latin verb aperire, "to open"; although an allusion to it being the season when flowers and plants begin to "open", it obviously takes on added significance when considering shops and pub gardens. 

Another area which usually opens up in the spring is the domestic housing market. Monday will see Mortgage Approval data released by the Bank of England, detailing the number of new mortgages approved for home purchases during the previous month. The figures will also show how much of an impact the Chancellor’s suspension of stamp duty has had on the market. Since July last year, the number of approved mortgages has beaten analysts’ forecasts every month, with many economists hoping for the trend to continue right the way throughout the summer. 

Allowing us a more comprehensive view on the UK economy, Wednesday sees the Office for National Statistics release its quarterly GDP figures, possibly one of the most important pieces of data when assessing the health of one of the world’s largest economies. As trade starts to open up again after the worst of the Coronavirus outbreak having hopefully passed, many will be looking for signs of a bounce back as the economy begins to reopen. 

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 and solid employment figures should only serve to justify this.

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 March 2021.