Market roundup: 31-4 June

Thomas Watts


This week

With record temperatures being reached across the UK during the week, it seems the sun is well and truly shining down on the domestic economy as it continues to bounce back from the COVID-induced slump of 2020. 

“Eye-popping” was how one commentator described the scene set for GDP growth in the second half of 2021 as yet more strong economic data showed signs that the UK is bouncing back quicker than most other economies. Thursday saw data released showing Britain's services sector recorded the biggest jump in activity in 24 years during May, after pubs and restaurants reaped the rewards of being able to serve customers indoors following months of lockdown. With a number above 50 indicating expansion in the sector, the Purchasing Managers' Index reading rose to 62.9 in May from 61.0 in April, taking it to its highest since May 1997, and above an initial estimate of 61.8. 

Over in the US, the story was much the same. Overshadowing President Biden’s plans to scrap his proposed corporate tax hike, investors focused on a stronger than expected US weekly unemployment report for May, also pointing to strengthening conditions in the labour market, while a measure of service sector activity increased to a record high. Friday also saw Non-Farm Payroll data released with the US adding 559,000 jobs, however this was slightly lower than the 675,000 anticipated by economists.

However, as strong as the data was, markets failed to gain traction as both the Bank of England and Federal Reserve have repeatedly stated that they expect initial rapid growth as the global economy reopens to revert to subdued pre-pandemic trends in a few months.

If the overall data was indeed eye-popping then it was left to the FTSE’s travel firms to have a spectacle made of them, as airline operators EasyJet and BA owner IAG both tumbled more than 5% towards the end of the week. News emerged that the government will not be adding any new countries to the green travel list and Portugal will be relegated to amber from next Tuesday. With the country being a popular destination for UK travel makers, especially during a time of severely reduced locations, it is one in the eye for those companies hoping to cash in during the summer.

Next week

With the summer having finally arrived and the sun high in the sky, it is only natural that we start the coming week in the land of the rising sun, Japan, one of the world’s largest exporters and a bellwether for global growth. 

Based on 11 economic metrics including employment, production, new orders and consumer confidence, the reading for Japan’s Leading Indicators data has been steadily rising since the worst of the outbreak of the COVID pandemic last year. This index is designed to predict the direction of the economy and should prove particularly useful for those who are using it to judge the future of the broader global situation.  

In what is a relatively quiet week on the economic data front, it is off to the continent we head during the second half of the week as the bloc’s central bank is due to speak on Thursday. The press conference is about an hour long and will have two parts; first, a prepared statement is read, then the conference is open to questions from the press. ECB officials will not have been briefed on these questions, which can often lead to unscripted answers, creating amplified volatility, especially in the currency markets.

With the spectre of a spike in inflation still hanging over markets, Thursday will also give us a clue as to how prices are rising, this time in the US. With both core and non-core Consumer Price Index numbers released, many will be focusing on the ‘core’ statistics which strip out volatile sectors such as fuel, food and clothing. Once released, we could see heightened volatility in both the currency and 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 June 2021.