A fair start to 2021

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Global markets got off to a steady start in 2021 after the volatility of 2020.

After an interesting first quarter in 2020, one year on markets have had a much quieter first three months in 2021, as the graph above shows. The UK, as measured by the FTSE 100 appears to remain a laggard, but that ignores the recent strength of sterling. Allow for that and the 3.9% rise in the FTSE 100 is better than the MSCI All-World performance of 3.2% in sterling terms. Similarly, the standout 10.3% rise of the Euro Stoxx 50 on the graph drops to just 2.1% when adjusted for the change in £/€ exchange rate.

A summary of the movements in the main markets is shown below:

31/12/2020 31/03/2021 Change in Q1 2021
FTSE 100 6460.52 6713.63 3.92%
FTSE 250 20488.3 21518.71 5.03%
FTSE 350 Higher Yield 2893.08 3106.46 7.38%
FTSE 350 Lower Yield 4291.83 4335.49 1.02%
FTSE All-Share 3673.63 3831.05 4.29%
S&P 500 3756.07 3972.89 5.77%
Euro Stoxx 50 (€) 3552.64 3919.21 10.32%
Nikkei 225 27444.17 29178.8 6.32%
Shanghai Composite 3473.07 3441.91 -0.90%
MSCI Em Markets (£) 1767.417 1785.206 1.01%
UK Bank base rate 0.10% 0.10%
US Fed funds rate 0.00%-0.25% 0.00%-0.25%
ECB base rate 0.00% 0.00%
2 yr UK Gilt yield -0.17% 0.10%
10 yr UK Gilt yield 0.19% 0.85%
2 yr US T-bond yield 0.12% 0.16%
10 yr US T-bond yield 0.92% 1.75%
2 yr German Bund Yield -0.71% -0.70%
10 yr German Bund Yield -0.57% -0.30%
£/$ 1.3669 1.3797 0.94%
£/€ 1.1172 1.1739 5.08%
£/¥ 141.1299 152.4559 8.03%

A few points are worth noting from this table:

The out-performance of the FTSE 350 Higher Yield over its Lower Yield counterpart is a reflection of the trend towards value. It is mirrored in the USA where the more heavily tech-weighted S&P 500 underperformed the Dow Jones Industrial Index by 2%.
Emerging markets were relatively disappointing in Q1, dragged down by China and rising US bond yields.

Increasing bond yields were a notable feature of the quarter. Although base rates were unmoved and 2-year Government bond yields little changed, 10-year yields rose sharply. There is now talk of the 2% barrier being breached for 10-year US Treasuries before the end of the year – more than double the starting level.

While the first quarter had its fair share of ups and downs, as the graph shows, the rise was more of a churn upwards than a straight trend. How long markets can continue to rise if bond rates continue to do the same is the point to watch in the coming three months.

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Source: Techlink

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