Investors’ attention continued to focus on central banks looking for hints as to when they might start tapering financial support, ahead of interest rate rises. The previous week’s weak labour report in the US, highlighted the slowing economic recovery weighed on markets.
Last week’s performance – major stock markets
| S&P 500 | -1.69% |
| Nikkei 225 | +4.30% |
| CSI 300 | +3.52% |
| Euro Stoxx 50 | -0.75% |
| FTSE 100 | -1.53% |
Commentary
US: Job market worries continue to linger
Several factors weighed on sentiment, including September’s reputation for being a weak month for stocks. The previous week’s significant August payrolls miss seemed to linger in the minds of investors and exacerbated worries that the delta variant of the coronavirus was slowing the economic rebound. Evidence continued to emerge that the latest coronavirus wave was peaking, but health officials warned that the return to school and ‘Labor Day’ social gatherings might derail progress. Inflation worries may have also continued to weigh on sentiment.
Japan: Optimism ahead of new prime minister
Markets rose sustained by political optimism and expectations of further fiscal stimulus under a new Prime Minister, following the decision by current Prime Minister Suga to step down. The Bank of Japan has indicated that rates will remain low to enhance the effect of any fiscal policy. While the government again extended its coronavirus state of emergency measures, the sentiment was boosted by the announcement of plans to ease restrictions once most of the population has been vaccinated, with relaxation expected to commence around November.
China: Positive trade date despite renewed lockdowns
Strong trade data and reportedly candid phone conversations between the U.S. and Chinese presidents lifted sentiment. Merchandise exports in August increased 25.6% over a year earlier, while imports climbed 33.1%. This is positive, particularly due to the renewed lockdowns across the country following a recent outbreak of the delta coronavirus, which led to a closure of a key container port.
Europe: Inflation rises and sentiment falls
Shares in Europe weakened amid uncertainty about the economic outlook, the continuing coronavirus pandemic, and central bank policy. The European Central Bank (ECB) decided to move to a “moderately lower pace” of bond purchases under its Pandemic Emergency Purchases Programme for the rest of the year, after a rebound in European growth and inflation but said it was not tapering its stimulus. The ECB also raised its forecast for 2021 economic growth.
UK: Covid-19 cases rise and economic activity slows down
Boris Johnson secured approval from parliament for £12 billion in tax increases to fund changes to social care and the NHS. On the economic front, the recovery slowed to a crawl in July as a surge in the Delta variant of coronavirus forced workers to self-isolate and consumers spent less. UK economic growth slowed in July to 0.1% – compared with 1.0% in June. Elsewhere, supply chain delays are still being reported by companies.