The rise in global coronavirus cases take the shine off improving economic data
Improving economic data gave way this week to a sharp increase in Covid-19 cases in areas of the world that have been left behind in the race for vaccines. The majority of the worlds equity markets fell, with those sectors set to gain the most with the reopening of economies being hit hardest, including travel and leisure. US Treasury yields, which move inversely to prices, fell even further this week, having already benefitted from overseas buying in recent weeks. The 10-year US Treasury dropped as low as 1.53%, having been up as high as 1.76% at the end of March. As earnings season began many companies released positive results, with those more advanced with vaccination programmes showing strong growth, whilst others, often in the emerging markets, showing weakness as coronavirus takes hold once more.
Falling Equity Markets
As of noon London time on Friday, European equities lost 1.0%, UK stocks dropped 1.5% and US equities fell 1.2% over the week, with US technology stocks falling 1.7%. The Japanese market fell by 2.3% as expectations rose that the country is about to declare a state of emergency in response to an increase in Covid-19 cases, whilst Australian stocks were flat for the week. China was one of the few markets to rise over the week, with domestic ‘A’ shares increasing by 1.4. The market was led by companies that reported big earnings jumps for the first quarter, with healthcare and consumer staples being the lead sectors. However, the wider emerging markets complex fell by 0.5% in aggregate, with India falling by 2.0% as the country reported a world record 332,000 new coronavirus infections versus the previous day.
Precious metals rose, with gold now trading at $1,786 an ounce, whilst it was a mixed picture for industrial commodities. Copper climbed back to levels last seen in February, trading at $9,421, whilst iron ore continued its recent rally to new highs for this year, rising by over 5%. In contrast, crude oil traded down, with Brent crude now trading at $65.5 a barrel and US WTI (West Texas Intermediate) $61.7.
The data’s looking good
Much of the economic data released last week was positive despite the risk-off tone. US initial jobs claims came in below expectations for the second consecutive month, helping to confirm that the previous month’s figures were not an anomaly. The UK’s unemployment rate came down to 4.9%, although the furlough scheme most likely helped to flatten these figures.
Purchasing managers indices indicate how companies consider the environment they are operating in. The UK manufacturing PMI came in at 60.7, with any number above 50 indicating expansion, whilst the services sector PMI was recorded as 60.1, both beating expectations. It was a similar picture in Europe, with the composite PMI coming in at 53.7, beating forecasts.
March retail sales data in the UK was significantly ahead of forecasts, recording a month-on-month increase of 5.4%, compared with expectations of an increase of 1.5. This was despite most shops still being closed. The increase in sales was attributed to clothing sales and garden equipment.
The Australian market was a relative outlier this week to other developed economies, having finished the week flat. The market declined at the start of the week, with concerns over coronavirus case numbers rising in some countries. In addition, weaker oil prices this week also dragged on energy companies in the index. However, the Australian market bounced back on Thursday, with all sectors rising, but it was gold miners that lead the way, surging 2.7% on the day after the precious metal also rallied in price.
More on the US
President Biden pledged to reduce US greenhouse gas emissions by at least 50% by 2030, more than double the country’s prior commitment under the 2015 Paris climate accord. Brazil, Canada and Japan also committed to curb domestic emissions during the President’s climate summit, held on “Earth Day”.
Despite this news, the International Energy Agency forecast that energy-related carbon-dioxide emissions will increase by 4.8% this year following a steep fall during the pandemic. This represents an increase of 1.5 giga-tonnes, the second largest on record. China’s emissions will increase by 6% over 2019, India’s by 1.4% but America’s will be 5.6% lower.
It was reported that President Biden is planning to increase capital gains tax from 20% to as much as 43.4% for Americans earning over $1 million. However, according to UBS, around 75% of the US stock market is owned by accounts that are not subject to capital gains taxes, such as retirement accounts, endowments and those held by foreign investors.
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