Market Update – 25th March 2021.

26th March 2021

We had hoped that this week’s joint testimony to the House of Financial Services Committee by the Fed Chair, Jay Powell, and US Treasury Secretary and former Fed Chair, Janet Yellen, would help equity markets, but it turned out to be a complete anti-climax as they both simply repeated their recent comments that the economic recovery is in its infancy and as such, monetary and fiscal support will remain firmly in place.

Instead it has been a challenging few days for equity market sentiment despite some positive economic data releases, thanks to concerns regarding US/China relations; the value of the Turkish lira after President Recep Tayyip Erdogan dismissed the central bank governor; vaccination tensions between the UK and EU; and on-off coronavirus lockdown restrictions in Germany – and this uncertainty has hurt travel and leisure stocks in particular, for example, both IAG (the owner of British Airways) and Carnival (which operates cruise ships) have both fallen over 8% so far this week.

This week’s positive economic data included today’s (Thursday 25 March 2021) jobless claims data which fell to their lowest readings in a year, with initial filings for unemployment falling to 684,000 and continuing claims falling to 3.87m – which gives us further optimism on the state of the US employment market.  Additionally, the US today revised up Q4 GDP from 4.1% to 4.3%.

UK data showed that the unemployment rate fell to 5% in the three months to January from 5.1% in December; UK CPI inflation declined to 0.4% despite recent market speculation that it would increase; and the composite PMI data reading (Purchasing Managers Index) rose to 56.6 from 49.6 in February.  More importantly, as 50 is the line separating expansion and contraction, this PMI data reading adds to the evidence that the UK economy has adapted well to the coronavirus lockdowns and suggests to us that the UK is likely to confound the major economist by only suffering a modest economic contraction this first quarter (January – March 2021).

The only data release that disappointed equity markets was the US durable goods orders, which fell 1.1% in February, compared to economist expectations of 0.5% growth – which would suggest that these economists had forgotten about February’s exceptionally cold weather across large parts of the US, coupled with the well documented semiconductor shortage.

Investment Management Team