12th April 2021

Good morning,
Stock markets have almost been quietly going about their business in recent weeks, notching three straight weeks of gains. Markets appear to be successfully digested the move higher in U.S. treasury yields that has occurred so far this year. The movement in bond prices hasn’t been as pronounced in the eurozone, and the performance of eurozone stock markets in recent weeks has been impressive. Whilst the relative value of equities vs bonds has narrowed somewhat in 2021, the thesis remains intact. Policymaker activity has kept shorter duration yields relatively stable, and with the strength of the economic recovery being born out in leading economic indicators, equities remain our preferred asset class.

The broad based nature of the positive equity returns so far this year are also cause for optimism. Whilst there has been a significant ‘catch up’ in some sectors that lagged in 2020, there have been positive returns from all eleven global sectors. Attention will turn this week to Q1 earnings, which traditionally kicks off with U.S. banks reporting. Goldman Sachs, Wells Fargo, and JP Morgan all make announcements this Wednesday.

Weekly Investment News
Equities enjoyed their third positive week in a row, as a number of U.S. indexes hit record highs once again. Technology, and growth stocks in general, outperformed the market to make up some of the relative ground lost so far in 2021. Apple and Microsoft saw notable gains whilst the energy sector lagged as oil prices fell early in the week. Within fixed income, the closely watched U.S. ten year treasury yield (which moves inversely to price) fell over the course of the week, despite rising on Friday following a strong rise in U.S. produce prices.

The Produce Price Index rose 1% in March, which was double the consensus estimate. This brought the twelve month figure to 4.2%, which is the largest in almost ten years and keeps concerns about inflation very much on the agenda. Commentators point to both a potential surge in demand combined with continuing global supply chain disruptions as the main cause of the jump. The latest Federal Reserve FOMC meeting minutes (released last Wednesday) did of course reference inflation a number of times, but the members appear to be focusing more on labour market conditions currently and are less concerned about inflation than others in the marketplace.

Global data pointed further to the continuing recovery in economic growth with the March manufacturing PMI rising to 55 from 53.9, with services moving from 52.8 to 54.7. However, it is worth noting the dispersion in data underneath the surface due to the continuing differences in restrictions and vaccine rollout programmes globally. Chinese services also continued to recover and showed its strongest reading so far in 2021. With much of the recent focus being on economic data, investors will shift back towards earnings this week as Q1 2021 reporting begins to gather pace.

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