Market Monitor - 20 August 2021

Market Monitor – 20 August 2021

Share prices around the world sustained sharp losses this week over fears that central banks could soon start to scale back market stimulus measures as the post-pandemic recovery continues.
The driver of the latest bout of investor pessimism was the release on Wednesday 18 August of minutes from the latest Federal Reserve meeting in the US. A clear majority of Fed members now appear to support the unwinding of the bank’s asset-purchase programme at some point in 2021, as the US economy bounces back from its Covid-induced slump.
With less money set to be pumped into the financial sector, investors expect the recent bull run to come to an end, or at least to lose significant momentum. A suspension of the stimulus programme could also mean an increased likelihood of interest rates rising in the near future – another development feared by stock market.
But while the Fed is concerned about the risks of the US economy overheating, indicators from elsewhere in the world suggest the spread of the Delta coronavirus variant could be hampering a return to growth. Industrial production figures from China came in well below estimates at the start of the week, while the country’s retail sales growth in July also underperformed expectations.
New lockdowns in Japan, Australia and New Zealand are a reminder that the global economy is not out of the woods as far as the pandemic is concerned – and if Delta is not brought under control quickly, it may be the case that the Fed and other major central banks will be compelled to keep the stimulus taps turned on for longer than expected.

The US

On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 19 August 1.7% down for the week so far, while the S&P 500 was 1.4% lower. Share prices in the US were hit earlier in the week as technology stocks fell back from recent highs, with Tesla dropping 5% on Monday 16 August following news that regulators were investigating the company’s autopilot technology.
US retail sales for July came in lower than expected with ongoing component shortages at car manufacturers continuing to hamper production.

Europe

In the UK, the FTSE 100 ended Thursday 19 August 2.2% down for the week. As well as wider concerns around the scaling back of stimulus measures later this year, travel shares endured another tough week following the news that some European countries could soon reintroduce restrictions on arrivals from the UK. Inflation in Britain fell faster than expected to 2% in July, although the UK housing market surged by more than 13% in the 12 months to June.
In Frankfurt, the DAX index ended Thursday’s session down 1.3% for the week, while France’s CAC 40 slumped 4.2% following its recent surge. Official figures showed that eurozone inflation had risen to 2.2% in July, ahead of the European Central Bank’s 2% target.

Asia

In Asia, the Hong Kong’s Hang Seng index was down 4.1% when it closed on Thursday 19 August while Japan’s Nikkei 225 index of leading shares had lost 2.5% – both were hit hard by the potential ending of stimulus in the US as well as the apparent slowdown in the Chinese economy. Toyota said it would be forced to reduce worldwide production levels in September due to the impact of the Delta variant on its supply chains in southeast Asia.
Aug 13
Aug 19
Change (%)
FTSE 100
7214.3
7058.9
-2.2
FTSE All-share
4146.4
4064.1
-2.0
S&P 500
4468.0
4405.8
-1.4
Dow Jones
35515.4
34894.1
-1.7
DAX
15977.4
15765.8
-1.3
CAC 40
6895.3
6605.9
-4.2
ACWI
736.0
719.9
-2.2
Hong Kong Hang Seng
26395.5
25316.3
-4.1
Nikkei 225
27980.1
27281.2
-2.5

Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 19/8/2021.

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20 August 2021
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