- Weekly market update
- 5 minute read
A good week for
- Gold, which climbed c. +2% higher in US dollar terms.
- Japanese and emerging market equities, which gained over +1% in GBP terms.
A bad week for
- Oil, which weakened over +3% in US dollar terms.
- UK and US equities, which swooned in GBP terms.
UK inflation surged to 1.5% in April from 0.7% in March. The jump was primarily driven by a rebound in energy prices and a recovery in clothing prices. Higher shipping costs had an impact on the cost of larger goods, such as furniture. This is a rapid acceleration in inflation towards the Bank of England’s 2% target. With social restrictions easing and economic activity resuming, inflation may accelerate further if strong demand overwhelms the supply of goods and labour, particularly in tourism. Although inflation is rising, the BoE’s Monetary Policy Committee is expected to keep interest rates low for some time given that there are not yet signs of sustained and general price rises – they think inflation will wash through. The MPC will have a clearer view of the state of the economy in the Autumn, once the furlough scheme ends.
The minutes of the April meeting of the Federal Reserve Open Markets Committee were released last week, sending a more optimistic tone and highlighting division among members. While “various” participants stated that it would likely be “some time” until substantial further progress was made, “a number” suggested that, if the economy continued to heal rapidly, it might be appropriate “at some point in upcoming meetings” to begin discussing tapering. While the minutes hint at a greater openness to discuss tightening monetary policy, the April meeting pre-dates some weaker economic data, that may give FOMC members reasons to delay taking action.
Japan’s economy contracted more than expected in the first quarter of 2021, shrinking by -1.3%. A third wave of Covid-19 infections prompted the government to announce a state of emergency for the second time in January, hitting the economy. Underlying data were mixed: consumption fell by less than anticipated, government spending and business investment were weaker, and imports, which detract from GDP, beat forecasts. Japan is experiencing a slower recovery than its developed market peers, in part due to the slow rollout of vaccinations. This is now imperilling the Olympic Games, due to take place in Tokyo in June.
Economic data revealed that China’s economic recovery continued in April, though some segments were weaker than expected. While exports, manufacturing investment and property were all strong, infrastructure investment and retail sales were weaker. As the world’s second largest economy, China is an important driver of global growth. China has managed the pandemic successfully, with limited national social restrictions allowing economic growth to recover, though consumers’ habits may have irrevocably changed. Given the robust rebound, officials are seeking to tighten regulations on China’s shadow banking sector which has prospered during the pandemic. While new curbs may cool borrowing, policy makers have signalled that they won’t forsake economic growth.
The UK and Australia are exploring the terms of a trade deal which could phase out tariffs on imports over the next 15 years. International Trade Secretary Liz Truss is seeking to secure a deal by June. Such a deal is controversial due to concerns that UK farmers may be undercut by large Australian beef and lamb producers. While farming is a small share of the UK economy, food-producing industries have already been hardest hit by the non-tariff barriers introduced as a result of the UK leaving the EU.
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.