Mixed week for equities with policymakers to the fore

27/09/2021 | Zurich Ireland

Weekly updates

Mixed week for equities with policymakers to the fore, writes Ian Slattery

Equities had a poor start to last week, with the S&P 500 seeing its worst day in a number of months last Monday. However, much of the losses were recouped throughout the rest of the week as major markets finished on more solid ground. The possible default of Chinese property developer, ‘Evergrande’ was the source of much consternation as investors feared any collapse could lead to a global sell off. However, Chinese authorities had stepped in by mid-week which saw a capital injection into the banking system and a restructuring plan announced for Evergrande.

The U.S. Federal Reserve met on Wednesday with no change in the headline interest rate, as expected. However, Fed Chair Powell did give further hints in his press conference in relation to plans for tapering of bond purchases and a more ‘hawkish’ tone is beginning to emanate from the individuals on the committee. Bond yields (which move inversely to prices) moved higher on both sides of the Atlantic. There was little in the way of U.S. economic data last week, but housing starts rose 3.9% whilst building permits climbed 6.0% as new home sales were up 1.5% in August. The property market appears to be still navigating a number of supply side concerns.

The Bank of England also kept its headline rate unchanged at 0.10%, although two board members made the case for higher rates as Governor Andrew Bailey stated he sees inflation at elevated levels over the next year. The German election took place over the weekend, with the initial results too close to call. A coalition between the SPD and the CDU/CSU bloc looks likely as a strong showing from the Greens has also brought them into the equation. Market reaction has been muted with the final makeup of the new government unlikely to deviate massively from previous policy.

Equities

Global stocks were up last week by 2.0% in euro terms and 1.9% in local terms. Year-to-date global markets are up 21.8% in euro terms and 16.6% in local terms. The U.S market, the largest in the world, was up 2.3% in euro terms and 2.2% in local terms.

Fixed Income & FX

The U.S. 10-year yield finished at 1.49% last week, up from 1.35% a week earlier. The German equivalent finished at -0.21%. The Irish 10-year bond yield finished at 0.17% to remain in positive territory. The Euro/U.S. Dollar exchange rate finished at 1.17, whilst Euro/GBP finished at 0.85.

Commodities

Oil finished the week at $75 per barrel and is up 61.2% year-to-date in euro terms. Gold finished the week at $1,748 per troy ounce and is down -3.8% year-to-date in euro terms. Copper finished the week at $9,344 per tonne.