It was a muted week for markets, with the except of Japan, driven by mixed economic numbers. In the US, reports on the labour market delivered underwhelming numbers, whilst inflation in Europe continues to pick up. China sees economic activity drop whilst Covid-19 cases in the UK are on the rise again. Over in Japan, Prime Minister Suga resigns.
US: All eyes on the job market
Throughout the week, investor sentiment was driven by the anticipation of payroll reports. On Friday, reports showed that nonfarm payrolls grew by 235,000 in August versus expectations for a gain of 750,000. The impact of the delta variant of the coronavirus was clear – hiring in leisure and hospitality ground to a halt in August. The weak jobs number supports the Fed’s cautious approach to removing support from the economy and as a result, markets didn’t react too badly. The S&P dropped slightly on Friday but still managed to post positive returns for the week.
Japan: Prime Minister Yoshihide Suga resigns
Amid mounting criticism of his government’s handling of the coronavirus pandemic, Prime Minister Yoshihide Suga announced his intention to resign this month. News of Prime Minister Suga’s resignation contributed to a strong rally in Japanese equities, removing some political uncertainty and raising expectations of increased economic stimulus. Gains were underpinned by Japan’s accelerating COVID-19 vaccination drive.
China: Companies report strong results amid slowdown in economic activity
Chinese stocks rose for another week. Chinese companies posted robust earnings for the period of April to June. Meanwhile, economic data suggests that business activity dropped in July. The services sector was impacted likely because of rising coronavirus infections and renewed restrictions, whereas China’s manufacturing companies grapple with rising cost pressures.
Europe: Inflation rises and sentiment falls
Shares in Europe were little changed as investors assessed signs of slowing economic activity. Individual country indices were mixed during the week. The number of coronavirus cases in the EU and European Economic Area stabilised, although the number of deaths rose. Eurozone inflation accelerated to 3% in August and economic sentiment across the region dropped in August.
UK: Covid-19 cases rise and economic activity slows down
Whilst the FTSE 100 was broadly flat, the more domestically focussed FTSE 250 returned 0.6%. The number of people in private residential households testing positive for the coronavirus climbed, as did hospital admissions of infected people. Economic activity appeared to slow in August, due to a decline in service sector activity that appeared to stem from normalising demand, labour shortages and supply chain obstacles.
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