Last Week in the City: Global shares at record high despite Delta threat

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook for the week ending 6 August 2021.

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  1. Garry White

The MSCI World Index hit another record high this week, despite concerns over the spread of the Delta variant of Covid-19, which caused oil prices to slip and Asia shares to fall on Friday. The variant is spreading in the US and China, the world’s two largest oil consumers. However, a bumper US second-quarter reporting season is supporting market gains.

The FTSE 100 was up 1.35 over the week and the FTSE 250 was 2.4% ahead by mid-session on Friday.

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Covid-19

Asian shares fell on Friday despite an upbeat Wall Street session as the spread of the Delta variant of Covid-19 across the region sparked recovery concerns. China on Friday reported 124 confirmed cases for 5 August, its highest daily count for new cases in the current outbreak, fuelled by a surge in locally transmitted infections. Thailand and Malaysia both reported record daily cases on Thursday. We look at the problems facing Asia here.

As a result of pandemic restrictions being introduced in China’s holiday season, investment bank Nomura lowered its forecast for the country’s third-quarter growth to 5.1% from 6.4% previously – and estimates 4.4% expansion in the final three months of the year, down from 5.3%. For the full year, Nomura cut its GDP growth forecast to 8.2% from 8.9%.

Daily new Covid-19 cases in the US hit a six-month high, as the Delta variant caused cases to surge in Florida and other states with lower vaccination rates. Crude prices fell about 5%.

The negative news on Covid-19 from the world’s two largest economies results in the largest fall in global oil prices this week since March.

US corporate earnings

The US second-quarter reporting season is well underway, with most companies beating estimates. According to JP Morgan using data up until Wednesday:

  • Based on 71% of S&P 500 companies that have reported so far, 89% beat 2Q earnings forecasts and 86% beat revenue estimates.
  • Earnings surprised to the upside by 20.2%.
  • For companies that have reported so far, 2Q Revenue Growth was around 27.9% year-on-year and net-income growth was 99.5%.
  • There was strong revenue (4.9%) and earnings (27.2%) surprise for cyclicals, which was driven primarily by strong earnings beats within Financials.

Economics

The recent jump in consumer prices will be temporary as the UK emerges from the pandemic, the Bank of England's governor Andrew Bailey insisted. On Thursday, the Bank warned inflation will hit 4% this year, higher than previously forecast and double the 2% target. However, policymakers left interest rates unchanged at 0.1%. The Consumer Prices Index hit 2.5% in June – its highest for almost three years – as food and energy costs rose.

A survey showed factory activity in China growing at its slowest pace in 17 months, with the official Purchasing Managers’ Index (PMI) easing to 50.4 from 50.9 in June. However, it remained above the 50-point level that separates growth from contraction.

Geopolitics

Chinese shares have been under pressure recently as authorities moved to clamp down on regulatory concerns, hitting the education, gaming and technology sectors. Is this just a little trouble in big China, or something more worrying? Rob Morgan takes a look here.

Environmental, social and governance (ESG)

More electric vehicles were registered than diesel cars in the UK for the second month in a row in July, according to the Society of Motor Manufacturers and Traders (SMMT). However, new car registrations fell by almost a third and registrations of petrol vehicles far outstripped both. This is the third time battery electric vehicles have overtaken diesel in the past two years.

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Property

Halifax said house prices rose again in July after dipping last month, making the average price £261,221 and leaving prices 7.6% higher than at the same time last year. Last month, average prices were 8.7% up on a year ago. The lender said it expected prices to settle further recent rises, which has been fuelled by tax breaks on stamp duty. However, it said a shortage of homes was likely to support prices.

Are alternatives to equities and bonds – such as property, commodities and hedge funds – good additions to a portfolio? We take a look here.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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