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WeekWatch -‘The Nikkei 225 fell over 2.5% in the week, with notable falls on the Tuesday and Friday’ August 2021

WeekWatch -‘The Nikkei 225 fell over 2.5% in the week, with notable falls on the Tuesday and Friday’ August 2021

Asian stocks hit a 7-month low early last week, as the market was weighed down by a combination of Delta variant Covid-19 outbreaks in several markets combined with ongoing fears around a crackdown from the Chinese Government.

The Nikkei 225 fell over 2.5% in the week, with notable falls on the Tuesday and Friday. This meant the Japanese index ended the month down 4.96%, despite any feel-good factor coming from the Olympics.

Falls were especially sharp at the start of the week, as China’s crackdown on tech companies and the private tutoring industry combined to spook investors. Although Chinese regulators and official media put out mid-week messages to sooth some of these fears, it was not enough to push the Hong Kong Hang Seng, or large mainland Chinese indices out of negative territory for the week overall.

Chinese regulatory moves also influenced US stocks, especially those affected by Beijing’s clampdown. On Tuesday, the tech heavy Nasdaq fell 1.2% over these fears – it’s worst day performance in over 2 months, while the S&P 500 and Dow also fell.

Tuesday was followed by a series of strong results from US companies, which helped lift prices in the back half of the week. A combined quarterly profit from Apple, Alphabet and Microsoft of $57 billion grabbed headlines. Last week also saw the Federal Open Market Committee (FOMC) agree not to not raise interest rates or adjust the pace at which it is buying Government bonds.

Mark Dowding, chief investment officer at BlueBay Asset Management, noted “Our analysis from the FOMC meeting was that the tone from Powell was relatively upbeat. At this point, the Fed is waiting for more confirmation that the labour market is making robust progress before announcing steps to begin withdrawing policy stimulus. We will see two payroll prints between now and the September Fed meeting and if these show sufficient strength, then we would continue to look for a taper announcement at that meeting, in line with a revision to Fed economic projections for 2022 and beyond.”

The week also saw the US release its GDP growth for the quarter, which came in at 6.5% on an annualised basis. While this brought the US economy back to its pre pandemic levels, it was well below forecasts of 8.5%. With Covid-19 cases rising again across much of the US, fears that the next quarter might also witness slower than expected growth helped weigh down markets on Friday.

In the EU, where vaccine levels are catching up with the US and UK, GDP figures were generally less disappointing in the larger economies. Although Germany missed its estimates, Spain, Italy and France all beat expectations, to varying degrees.

This, combined with some strong company results, helped push the STOXX 600 up to record highs on Thursday, although it lost some of these gains on Friday. Overall, however, it finished the week and the month up.

Azad Zangana, Senior European Economist and Strategist at Schroders noted: “The eurozone is emerging from its second recession since the start of the pandemic as businesses slowly reopen. Restrictions on contact services that limit or prohibit certain activities remain, but the slow return to some normality is welcomed by all.”

He added: “Given the precipitous fall in activity last year, we always expected a sharp rebound once restrictions were lifted. Despite only a partial unlocking, activity indicators, such as the macro composite purchasing managers indices (PMIs) have soared. The aggregate eurozone PMI is at its highest level since February 2000.”

In the UK, the recent Covid-19 wave appears to be receding, and the number of UK adults having received 2 doses of their vaccine broke 70% last week. As of the end of the month, approximately 90% of all UK adults had received at least one dose of the vaccine.

Similar to the EU markets, the FTSE 100 saw some strong growth on Thursday, only to see some of that recede the following day. Although this meant it finished the week broadly flat, however it remained down for the month.

Bluebay Asset Management and Schroders are fund managers for St. James’s Place.

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