Economic data released this week continued to build on an improving picture as restrictions in the developed world are increasingly lifted as vaccine rollouts progress. Perhaps as importantly the data, whilst being strong, has not been so strong as to unduly worry markets about interest rate rises being brought forward to combat inflationary concerns. Markets are back in a goldilocks scenario, with a gradual rotation out of Covid winners, into Covid recovery stocks. However, until the whole world is vaccinated against Covid, the risk of further mutations is ever present. This triggered the US this week to support a suspension of intellectual property rights for Covid vaccines, sending the share prices of several pharmaceutical companies sharply down.
Rotation out of Covid winners into Covid losers
As at 12pm London time on Friday, US equities rose 0.5% over the week, whilst US technology stocks slumped 2.4%. Eurozone equities gained 1.4% and UK equities were up 1.9%. Japanese stocks rose 1.8% and the Australian market increased 0.8%. The emerging markets however fell 0.5%, not helped by a further escalation in Covid infections and, for many countries, a general lack of vaccines to rely upon.
US private sector jobs data falls short of expectations
10-year US Treasury yields, which move inversely to price, fell this week as data releases, although continuing to be positive, missed forecasts and lowered inflationary fears. The ADP private sector employment report showed that 742,000 new jobs had been added in April, but this was lower than the forecasted 800,000 new jobs. Later today the keenly awaited non-farm payroll data is due to be released, with expectations that one million new jobs will have been created, which if achieved, would be a strong indicator as to the strength of the US recovery. The 10-year US Treasury yield is currently trading at a yield of 1.57%, whilst German and UK yields also fell slightly, trading at -0.22% and 0.79% respectively.
Strong US PMI data but short of expectations
This week also saw the release of several purchasing managers indices (PMI), which provide an insight into the operating environment companies find themselves in and are considered a good lead indicator for the strength of economies. The US Institute for Supply Management manufacturing report came in at 60.7, with any number above 50 indicating expansion. Although this was very strong, it was down from the previous month and missed forecasts of 65. Similarly, the US services ISM came in at 62.7, once again very strong but beneath expectations. The Eurozone IHS Markit PMI manufacturing indices came in at 62.9, building further on the previous month and registering a record new high, whilst services came in at 50.5. Similarly, the UK’s manufacturing PMI came in at 60.9, slightly above the previous month, and services came in at 61. China’s PMI data continued to be robust too, with the composite index coming in at 54.7, higher than last month’s reading of 53.1.
Commodity prices continue to rise
Crude oil rose over the week, with Brent crude now trading at $68.2 a barrel and US WTI (West Texas Intermediate) $64.8. Copper continued its ascent, rising over 5%, now trading at $10,095 and iron ore leapt over 13%. This made metals and mining one of the strongest performing equity sectors over the week, rising 6.9% globally.
Gold benefits from a fall in interest rate expectations
Gold also increased by 3.0% to $1,820 an ounce, benefitting from falling expectations of a near term interest rate rise, as real yields, i.e. after inflation, continue to be close to zero, if not negative.