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WeekWatch -‘Markets ended Friday recovering from a midweek dip’ July 2021

WeekWatch -‘Markets ended Friday recovering from a midweek dip’ July 2021

Markets ended Friday recovering from a midweek dip, caused by – among other things – a worry that the Delta COVID-19 variant might slow the progress being made on supply chains.

The week started with Chinese authorities ordering the removal of ride-hailing app Didi from mobile app stores in the country over data concerns. Didi, which had recently listed in the US, immediately saw its shares plummet. In recent months, Chinese authorities have signalled a strong will to crack down on fast-growing tech companies. Coming just a few months after Alibaba received a multi-billion dollar fine, unsurprisingly, Chinese tech stocks struggled during the middle of the week.

Further difficulties emerged internationally later in the week, as concerns about the pace of the global recovery from COVID-19 began to emerge. Thursday saw markets fall from Asia, to Europe, to America, as investors, economists and central banks began to take a slightly more pessimistic view on the pace of recovery.

On Wednesday, for example, minutes from the Federal Open Market Committee meeting in June revealed a number of members of the committee divided over the future policy in the US, and a number worried about growing pricing pressure.

On the same day, the Chinese government said it would cut the reserve ratio for banks to keep money flowing around the economy. Some interpreted this as a signal the Chinese Q2 GDP data might not reach market expectations.

The UK also released its economic data for May, which revealed a growth of 0.8%, leaving it still 3.1% below its pre-pandemic peak. This came despite the month seeing more freedom for indoor hospitality in May.

Explaining these GDP figures, Paul Dales, chief UK economist at Capital Economics noted: “The optimistic slant is that it was due to the unusually wet weather. The pessimistic take is that it could be an early sign that materials and labour shortages are restraining output.”

Looking ahead, Dales added: “Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level. But we hadn’t expected it to slow so much so soon. As such, whereas we previously thought that GDP would return to its pre-crisis peak in August, October now looks a better bet.”

On Friday, markets performed somewhat better, recovering some of the ground lost earlier in the week. The STOXX Europe 600, which fell 1.7% on Thursday, recovered 1.3% by the end of the day, meaning it actually finished the week slightly up.

There was a similar story in the UK, where the FTSE 100 Index’s fall on Thursday was followed by a 1.18% gain on Friday. However, this wasn’t enough to entirely make up for prior events, and it ended the week slightly down. US markets followed a similar trend, falling on Thursday, but recovering some of these losses on Friday.

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