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Last Week in the City: Japanese shares hit thirty-year high

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook for the week ending 3 September 2021.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook for the week ending 3 September 2021.
Garry white employee

by
Garry White

in Features

03.09.2021

The market awaited key jobs data from the US on Friday, as the recovery in employment in the US is seen as a key determinator of central bank policy. Japan’s Topix index hit a thirty-year high after its much-criticised prime minister resigned. Markets hope for further stimulus measures from his replacement.

The spread of the Delta variant of Covid-19 is hampering the recovery in some parts of the world, with data showing hits to the services sector worldwide. Figures from China revealed the sector is now contracting.

The FTSE 100 was up 0.5% over the week by mid-session on Friday with the more UK-focused FTSE 250 up1.1%.

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Covid-19

Professor Anthony Harnden, deputy chairman of the UK’s Joint Committee on Vaccination and Immunisation (JCVI), said that it was “highly likely” that there would be a vaccine booster programme of third shots. Its form will be decided over the next few weeks.”

The introduction of new restrictions on movement to curb the spread of the Delta variant of Covid-19 is hitting the service sector in many economies. China’s service sector tumbled into contraction. The Caixin/Markit services Purchasing Managers’ Index (PMI) plunged to 46.7 in August from 54.9 in July. That’s its lowest level since April 2020, in the first wave of Covid-19. Any reading below 50 indicates contraction. Activity across Australia and Japan’s service sectors also fell last month, after lockdown restrictions were brought in to fight the pandemic. However, activity in Germany's services sector expanded at a strong pace in August, albeit slightly weaker than in the previous month.

The UK economy will be dogged by labour shortages and supply chain disruption for many years as businesses struggle to recover from the Covid shock, according to a report by the Recruitment and Employment Confederation (REC). Neil Carberry, REC’s chief executive, said: “Large numbers of people are finding new work post-pandemic as the economy reshapes. But that realignment will take time, and there is good evidence to suggest that the market will remain tight for some years to come, even if the current crisis passes.” Food, logistics and hospitality businesses are struggling to get employees in place for the crucial festive season, despite the end of the furlough scheme in the UK on 30 September.

Japan’s Topix index has hit a 30-year high on Friday, after prime minister Yoshihide Suga unexpectedly announced he will step down. Mr Suga is stepping aside after less than a year, following criticism of his handling of the pandemic. Equities rallied as traders believe that this may result in an increase in government spending to stimulate the economy and fight Covid-19.

Ryanair chief executive Michael O'Leary expects a "very strong recovery" in European short-haul flights as it launched 14 new routes from London airports. The Dublin-based carrier predicts it will fly a total of 10.5 million passengers a month over the next three months. Pricing is expected to be below pre-pandemic levels and not return to the previous level until the summer of 2022. Jet2 management made similar comments, noting bookings for summer 2022 were encouraging – but winter prices were under pressure as Covid-19 restrictions impact holidaymakers.

An investigation by Reuters demonstrated the roll-out of Covid-19 vaccinations is making life insurers more enthusiastic about offering cover to those with underlying health conditions. Life insurers were imposing waiting periods to buy cover in the early stages of the pandemic for certain age groups, as well as for those who had been infected. AIG Life, LV=, Aviva and Zurich said they did not ask questions about the vaccination status of people applying for the policies either.

Economics

Markets eagerly awaiting the latest US jobs report on Friday, which will show whether America’s jobs market continued to recover despite the spread of the Delta variant. Economists expect about 750,000 new jobs were created in August, after a 943,000 rise in July.

A group of left-wing Democrats including Congresswoman Alexandria Ocasio-Cortez called for Jerome Powell to be replaced as head of the Federal Reserve in 2022. The central bank chief stands accused of not doing enough to tackle climate change or economic injustice. Mr Powell, a Republican, was appointed by Donald Trump in 2017 but his tenure expires in February. President Joe Biden is expected to reappoint him to the role.

Geopolitics

China unveiled plans to set up a third stock exchange to serve small and medium-sized businesses. President Xi Jinping said the new share market will be in the capital Beijing. Mainland China currently has two major markets based in the Shanghai financial hub and the southern city of Shenzhen. The move comes as Chinese companies are coming under intense pressure at home and in the US.

Something has changed in German public opinion, as the 26 September federal election to find Angela Merkel’s replacement approaches. We look at the country’s mood shift in our article "Germany grapples with rising prices and ECB independence"

Until recently, President Biden’s message that he is not Donald Trump has played well with Democrats and some floating voters; this week we took a look at how the Afghanistan situation could change that.

Mergers & acquisitions

JD Sports said it is "perplexed and disappointed" by concerns over its proposed takeover of rival Footasylum. The Competition and Markets Authority (CMA) says it is still worried that a merger will mean shoppers could face higher prices or less choice. The competition watchdog first blocked the £90m takeover last year but the sports retailer has appealed the ruling. In its response to the provisional findings, JD Sports accused the CMA of failing to consider the "structural shift in favour of online shopping" seen during the pandemic, which it says has benefitted big brands.

Swedish rare disease drug group Sobi recommended a cash offer from US private equity groups Advent International and Aurora Investment in the latest private equity swoop on a European company. The deal is recommended at a 34.5% premium.

The bid situation at Wm Morrison and Meggitt has resulted in shares in both companies being promoted to the FTSE 100 in its latest reshuffle. If the bids are successful, they will be delisted. Weir Group is demoted to the FTSE 250 and Just East is being removed because FTSE Russell has decided that it is a Dutch company rather than a British one, following its recent merger with Dutch competitor Takeaway.com.

Environmental Social and Governance (ESG)

The European Investment Bank (EIB) launched a new Climate and Environment Advisory Council. Chaired by European Central Bank President Christine Lagarde, the new council will advise and provide expertise on the activities that the EIB carries out to reach its climate action and sustainability ambitions. In 2019, the EIB decided to increase its level of climate and environment commitment, effectively transforming the group from being “an EU Bank supporting climate” into “The EU Climate Bank.”

Autos

General Motors will suspend output at most of its North American plants in September as the semiconductor shortage continues to hit carmakers. Four plants in the US, three in Mexico and one in Canada will shut down for up to two weeks. Vauxhall's boss said the global shortage was still having a significant impact on its production. Ford and Toyota also cut output this month as chip makers in the US and Asia struggle to meet demand.

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