Equities shrug off another weekly decline in yields

Europe

Concerns about the global economic recovery have weighed on equity markets this week, due to rising Delta variant cases in Asia, which has prompted Japan to implement a state of emergency, and South Korea tightening restrictions prompting increased volatility and weakness in stocks more broadly.

These concerns have also seen bond yields slide back with the US 10-year yield sliding for the second week in succession over worries that the recovery is either in trouble, or merely being delayed. Much will depend on how quickly those countries where cases are rising, can speed up their vaccine rollout plans in order to limit the scale of the various lockdown and travel restrictions.

The Nikkei 225 posted its biggest weekly loss since May, however markets in Europe look set to wipe out most of the losses this week as a consequence of today’s rebound, although the FTSE100 has once again lagged behind with the likes of the CAC40 and FTSEMib outperforming, even though they also led yesterday’s losses.

Concerns about the growth outlook also prompted the People’s Bank of China to cut its banks reserve requirement ratio by 50bps in a sign that the world's second biggest economy isn’t anywhere near as robust as first thought. On the plus side this helped to give a boost to the basic resource sector and commodity prices, led by Glencore and Anglo American.  

Amongst the gainers today Land Securities Group announced it had managed to collect about 81% of its due rent over the last three months as the UK economy continued its reopening process. The company which owns a combination of office and retail space including the Lakeside and Bluewater shopping centres, and Brighton Marina said it had £18m of rent outstanding. The company also announced it would be paying a dividend of 7p per share payable as a property income distribution on 8th October. This has given a lift to its sector peers with British Land also higher.

Automakers are boosting the DAX after Volkswagen announced they expected to see an operating profit of €11bn, despite the various chip shortages that are limiting production capacity.  

Airlines have continued to rebound in the wake of the upcoming easing of restrictions on double vaccinated travellers, with IAG and EasyJet higher along with JET2, which is enjoying a decent rebound after its big decline yesterday.

Wise shares briefly pushed above 1,000p earlier today as the momentum of Wednesday’s successful listing continued to push the shares higher, up over 20% in its first three days of trading.

Another successful listing from earlier this year, Darktrace has continued to set new record highs, with all those concerns about the legal problems of Mike Lynch, which tempered the IPO pricing almost a distant memory. Pricing at 250p back in April, the shares jumped by 32% on the first day of trading, and are now more than double their IPO valuation up above 560p. With their latest numbers due at the end of July it will be interesting to see whether investors remain as enthused about the company as they are now.    

US

US markets have picked up the more positive vibe from markets in Europe, opening higher, though momentum was already in their favour, having closed off their lows of the day late last night.

After losing ground yesterday US banks are bouncing back ahead of the release next week of their Q2 earnings reports. A rebound in yields appears to be helping to give the sector a lift, with JPMorgan, Citigroup and Goldman Sachs all higher.

Levi Strauss shares also opened higher after reporting better than expected numbers after the bell last night. Revenues came in at $1.28bn while profits came in at $0.23c a share.

GM is also higher after having its rating lifted on the back of its ambitions in moving into the electric vehicle space.

FX

In a week that has seen quite a bit of volatility in equity markets the Japanese yen and Swiss franc have performed well due to their positions as safe haven destinations. The US dollar has also performed well as concerns about a weaker global economic recovery has helped support the greenback.

In terms of today’s price action, the commodity currencies have enjoyed a rebound with the Canadian dollar getting a lift from a positive June employment report, while the pound has recovered some of yesterday’s losses particularly against the Japanese yen which has slipped sharply.

Commodities

Gold has seen its third successive weekly gain as lower US long term yields and weaker global equity markets help boost demand for the yellow metal.

Brent crude prices look set to post their first weekly decline since May after OPEC+ failed to come to an agreement on production output increases for August.