Global stock markets have made modest gains this week, with investors welcoming yet more clear signs of economic recovery on both sides of the Atlantic.
A number of countries have reported improved industrial performance over the last few days. While this has helped fuel optimism that the worst of the pandemic – in economic terms at least – is behind us, it also means that investors have to accept the likelihood that central bank support will start to be withdrawn in the coming months.
This support, in the form of quantitative easing programmes as well as record low interest rates, has been one of the reasons stock markets have remained so buoyant over recent months. But the threat of higher rates to keep inflation in check as well as an end of central bank asset purchases means that many stock markets are struggling at the moment to reflect the strong economic recovery being seen in Europe and the United States.
These are not the only clouds on the horizon for investors. The spread of new coronavirus variants – in particular the Delta variant first identified in India – has the potential to derail the recovery, and may require new advances in vaccine development.
Meanwhile, the supply-chain issues that have featured throughout the pandemic are currently affecting some sectors’ ability to return to pre-Covid activity levels, while surging oil prices are driving up producer costs.
The US
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.1% up for the week so far, with the S&P 500 down 0.3%. The latter index has a greater proportion of technology stocks, which have suffered this week as inflation fears have returned. But economic data in the US has again impressed: service-sector growth has hit record levels, while unemployment claims are down once more.
This week has also seen a return to the headlines of “meme stock” investments – share-buying sprees fuelled by gossip and speculation in internet chatrooms. Cinema owner AMC was the main beneficiary, seeing its valuation more than double on Wednesday. Its price slumped a day later after the company’s board announced plans to take advantage of the surge by issuing millions of new shares.
The UK & Europe
In the UK, the FTSE 100 ended Thursday 0.6% ahead for the week benefiting, like the US, from an improving economic picture. Services in Britain are growing at their fastest rate since last century, while employers taking on thousands of new staff to meet post-lockdown demand.
The UK housing market continues to boom thanks at least partly to the ongoing stamp-duty holiday, and the OECD has revised upwards its forecast for economic growth in Britain this year.
However, the spread of the Delta variant means that the government’s timetable for full reopening remains in doubt. And ministers’ decision on Thursday to further restrict international travel – most notably, by removing Portugal from the “green list” of countries – has frustrated airlines and holiday firms.
In Frankfurt, the DAX index ended Thursday’s session up 0.7% for the week, while France’s CAC 40 gained 0.4%. Service-sector performance across the eurozone has hit its highest level since 2018, with employment levels rising sharply as well. However, inflation in the eurozone has edged ahead of the European Central Bank’s sub-2% target.
May 28 | June 3 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7022.6 | 7064.4 | 0.6 |
FTSE All-share | 4016.1 | 4039.2 | 0.6 |
S&P 500 | 4204.1 | 4192.9 | -0.3 |
Dow Jones | 34529.5 | 34577.0 | 0.1 |
DAX | 15520.0 | 15632.7 | 0.7 |
CAC 40 | 6484.1 | 6507.9 | 0.4 |
ACWI | 711.2 | 711.4 | 0.0 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 3/6/2021.
