Equity markets sold off this week as minutes from the last US Federal Reserve meeting pointed towards monetary policy tapering discussions coinciding with data releases, suggesting a slowdown in growth for the US and an engineered slowdown in China. China also revealed the introduction of a strict data privacy law, prompting further concerns over the regulatory crackdown on big technology companies which sent internet and ecommerce stocks down sharply.
With the US stock market having doubled in value on Monday from the pandemic low point last year, the trend thereafter was downwards. As of 12pm London time on Friday, the US stock market fell 1.4% over the week, whilst the technology sector lost 1.9%. However, UK investors were shielded from this fall as the US dollar rallied, rising 1.9% versus Sterling and 1.0% versus the Euro. European equities, being more economically sensitive on average, fell 2.2%, as did UK equities. The Japanese market fell 3.9%, being heavily exposed to international exporters and suffering a rapid escalation in Covid infections. Australian stocks fell 2.2%, suffering from relatively high exposure to financials and materials, which both sold off heavily. The emerging markets dropped 3.8%, with the Hong Kong Hang Seng dropping 5.8% as large Chinese technology companies came under selling pressure.
Despite the selloff in equity markets being partly due to fears of US monetary tightening, US Treasuries proved to be resilient, a nod to the tapering of quantitative easing in September being far from a foregone conclusion. The yield on the 10-year US Treasury, which moves inversely to price, fell to 1.23%, whilst German bund and UK gilt yields also fell to -0.50 and 0.52% respectively.
Amongst commodity prices, gold held its own, rising 0.5% over the week, now trading at $1,787 an ounce. However, it was a very different picture for the industrial commodities which fell sharply. Copper fell 7.6%, iron ore was down 12.7% and Brent crude oil lost 6.4%, now trading at $66.0 a barrel.
Weak retail sales data spooks markets
US Retail sales data released this week showed a sharp drop for the month of July, as sales fell 1.1% versus forecasts of a 0.3% drop, with the weakness attributed to the spread of the Delta coronavirus variant. Goldman Sachs almost halved their forecast for third quarter GDP growth in the US, from 9% down to 5.5%. Once again, attributing the impact to the Delta coronavirus variant.
Issues under discussion
Investors continue to be concerned about the spread of the coronavirus, made worse by the highly contagious Delta variant. What has become abundantly clear, is that a policy of lockdowns and track and trace alone will likely be insufficient if a return to some sort of normality is desired. Developed countries in the West, including the US, the UK and the Eurozone are now well advanced with their vaccine programmes, at least amongst the adult population. But what is perhaps less well known, is how progress has advanced elsewhere.
Whilst many countries, especially in the emerging markets, remain far behind, many Asian countries have made great strides in catching up. Japan, which up until relatively recently had relied on lockdowns and track and trace, have now vaccinated over 56% of their adult population with their first dose. Even India has managed to vaccinate over 42% of their adults. Whilst Thailand has only vaccinated 27% with their first dose, assuming the run rate achieved so far is maintained, they will have vaccinated over 70% of their adults in the next three months with their first dose.