Weekly markets recap 8.3.2021

Shares fell on negative sentiment

U.S.

The major benchmarks finished mixed as longer-term interest rates continued their ascent. The rise in rates again weighed on growth stocks by increasing the discount on future earnings. Within the S&P 500 Index, energy shares outperformed as oil prices hit their highest levels in over a year. Technology shares were broadly weak, while consumer discretionary stocks continued to be dragged lower by electric vehicle maker Tesla.

Progress in the Biden administration’s USD 1.9 trillion stimulus package appeared to further bolster growth expectations. Most elements of the bill, including the USD 400 per week in federal unemployment benefits, remained intact and in line with the legislation passed in the House of Representatives the previous week.

Hopes appeared to grow that Fed Chair Jerome Powell would outline new initiatives to keep rates low. Powell’s satisfaction with the current stance of monetary stimulus appeared to disappoint investors broadly, leading to a sharp sell-off in equity and bond markets on Thursday afternoon.

EU

Shares in Europe ended higher on prospect that easing restrictions and supportive monetary and fiscal policies could set the stage for an economic recovery. However, gains were curbed by growing expectations that central banks would act to stem inflation. The pan-European STOXX Europe 600 Index rose 0.91% in local currency terms. Major stock indexes also advanced, while the UK’s FTSE 100 Index climbed 2.27% on the week.

Core and peripheral eurozone bond yields rose as long-term inflation expectations strengthened. Uncertainty about whether the European Central Bank would act to suppress the increase in borrowing costs, combined with the Federal Reserve reiterating its dovish stance, gave yields another boost. UK gilt yields broadly moved higher, lifted by Sunak’s unveiling of the annual budget.

Japan

Japan’s stock markets generated mixed returns for the week, with the Nikkei 225 Stock Average declining 0.35% and the broader TOPIX Index gaining 1.70%. The yen weakened and closed above JPY 108 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.09%, its lowest level since mid-February, on dovish comments from the Governor of the Bank of Japan (BoJ).