In fact, markets were subdued at the beginning of the week, as investors refrained from participating ahead of the start of US company earnings season. Investors were also cautious after US drug maker Johnson & Johnson said it would delay the distribution of its vaccine in Europe as it investigates the rare incidents of blood clots after taking the vaccine. However, late in the week, strong retail data in the US and robust growth figures in China prompted equities to finish higher.
As of 12pm London Time, the main US index is up 1%, with the technology index also higher by 1%. The European index is up 0.67%, whilst the UK market had a very strong week, up 1.38%, aided by positive economic data and the further reopening of its economy from lockdown. The Hong Kong index finished 0.94% higher, whilst the Japanese index was flat for the week. The Australian index, dominated by energy and commodity companies finished up 0.98% aided by a rise in commodity prices.
Strong economic data lifts market sentiment
In the US, retail sales in March rose by the most in 10 months, far exceeding expectations. Retail sales grew a seasonally adjusted 9.8% from the previous month, almost double the expected forecast of 5.9%. This heavy spending comes just as Americans receive their third round of stimulus cash, after President Joe Biden signed a $1.9tn spending plan earlier in March that included payments of up to $1,400 per person. Meanwhile the jobs picture also brightened in the US with the number of Americans filing for new unemployment benefits falling by 193,000 last week to 576,000, beating economists’ expectations for 700,000 new claims. Elsewhere, China posted strong growth with GDP growing 18.3% year on year for the first quarter of 2021, though the figures fell slightly short of expectations. This was supported by industrial production and manufacturing. Investors, however, are now questioning whether the government will act to rein in fiscal support to stop the economy from overheating.
Data in the UK was less impressive, but nonetheless positive with the economy returning to growth in February, as output grew 0.4% from the previous month. Despite lockdown measures in February, growth was helped by a partial rebound in trade with the EU as businesses learnt to deal with lockdown and new Brexit border restrictions.
US government bonds rally, much to the surprise of investors
Despite the strong economic data and positive sentiment, safe-haven government bonds rallied strongly this week. 10-year US Treasury yields (which move inversely to their price), fell from 1.65% to as low as 1.53% before settling at 1.56% as of 12pm London time. In addition, despite inflation in the US rising to 1.6%, which is negative for bonds (as inflation erodes the purchasing power of fixed interest payments), investors looked past this. Part of the rally has been attributed to foreign buying from Japanese investors, as they begin a new financial year. But the sharpest fall in yields came on Wednesday, when Jerome Powell, chair of the Federal Reserve commented that the central bank would maintain its asset purchase programme until “substantial progress” had been made towards full employment. Elsewhere equivalent 10-year UK Gilts and German bunds traded flat over the week trading at 0.76% and -0.28% respectively.
Improved demand picture helps boost commodity prices
Brent crude oil climbed to $66.96 a barrel, a 6.37% rise for the week, hitting a one month high thanks to the positive economic data and higher demand forecasts from the International Energy Agency (IEA). The agency cited that global oil inventories that built up during last year are now being used whilst the global economy appears to be recovering.
The stronger China data also helped industrial metals copper and iron ore rally. Copper imports to China rose 25% year on year, and the price this week rallied by 4.74%, whilst iron ore prices were up 4.18%. Gold prices finished the week up 1.87% to trade at $1,777 per ounce.