Markets weak as COVID jitters return

A steep decline in US treasuries was the market focus in the latter half of the week and the 10 year yield touched its lowest level (1.25%) since February.

Equities closed the week on a mixed note, with some sectors welcoming the impact of lower bond yields on investor valuations; whilst others focusing on whether failing yields signalled slowing economic growth.

The ECB announced a change in policy last week by unveiling a new inflation target as it has done away with the objective of ‘below, but close to, 2%’ inflation. ECB President Lagarde commented that the ECB now ‘considers negative and positive deviations of inflation from the target as equally undesirable’.

Shares in Europe were little changed as a result, whilst eurozone bonds appeared to track US yields lower. However, whilst this move from the ECB is still to be fully digested, it could have profound implications for monetary policy in the periods to come.

There was a host of data from the UK last week, with GDP rising 0.8% in May. Whilst this was below expectations it does consolidate the recent upward trend, as manufacturing and services PMIs also pointed to the continuing rebound in economic activity.

Interestingly, the data showed a 37.1% rise in accommodation and food services activity. This of course is coming from a low base, but as the UK opened up quicker than other developed countries it may be a sign of things to come elsewhere.

Equities

Global stocks were up slightly last week by 0.1% in both euro terms and local terms. Year-to-date global markets are up 18.0% in euro terms and 14.4% in local terms. The U.S market, the largest in the world, was up 0.4% in both euro terms and local terms.

Fixed Income & FX

The US 10-year yield finished at 1.34% last week, down from 1.42% a week earlier. The German equivalent finished at -0.30%. The Irish 10-year bond yield finished at 0.08%, to remain in positive territory. The Euro/US Dollar exchange rate finished at 1.19, whilst Euro/GBP finished at 0.86.

Commodities

Oil finished the week at $74 per barrel and is up 60.0% year-to-date in euro terms. Gold finished the week at $1,804 per troy ounce and is down -2.3% year-to-date in euro terms. Copper finished the week at $9,482 per tonne.

The week ahead

Tuesday 13^th July

US Inflation figures go to print.

Thursday 15^th July

Chinese Q2 GDP growth figures are released.

Friday 16^th July

US Retail Sales for June are published.