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European stocks hit record highs again

Last Week in the City, provides a round-up of the market movements and the global investing outlook for the week ending 13 August 2021.

| 11 min read

Last Week in the City

Concerns about the reintroduction of pandemic-related restrictions in some regions because of the spread of the Delta variant of the virus kept a lid on markets. Nevertheless, European shares made new records on Friday and were on track for their fourth consecutive week of gains on optimism over a strong earnings season and steady recovery from the pandemic-led economic downturn. The gains on Friday meant the pan-European STOXX 600 index hit a record high for the tenth consecutive session.

The travel industry continues to gear up for the summer holiday season. The US Senate passed the long-awaited $1tn infrastructure bill, but it still needs to be passed by the House of Representatives.

The FTSE 100 was up 1.0% over the week and the FTSE 250 was also +1.0% by mid-session on Friday.

Charles Stanley Radio

In our latest podcast, Chief Investment Commentator, Garry White and Jane Bransgrove, Director of Asset Management, discuss the practical issues arising from the rise of ESG investing.

Investment themes

Covid-19

China partly shut the world’s third-busiest container port after a worker became infected with Covid-19, threatening more damage to already-fragile supply chains and global trade. All inbound and outbound container services at Meishan terminal in Ningbo-Zhoushan port were halted Wednesday until further notice due to a “system disruption,” according to a statement from the port. An employee tested positive for Covid-19, the eastern Chinese city’s government said. This prompted concerns about further supply-chain disruption caused by the pandemic.

Although the pandemic has wrought havoc for companies involved in the global travel industry, some signs of life are now emerging. US airline JetBlue launched its long-awaited New York to London service with the first flight from the US landing on Thursday. Also, Intercontinental Hotels said holiday demand was "returning strongly". The Holiday Inn and Crowne Plaza brand opened 132 new hotels during the January-to-June period and acquired another 203, both sizeable increases on last year. "Trading improved significantly during the first half of 2021, with travel demand returning strongly as vaccines roll out, restrictions ease and economic activity rebuilds," chief executive Keith Barr said.

Fully jabbed travellers from the US and EU are now allowed to travel into the UK quarantine-free – although the US Centers for Disease Control and Prevention warns US citizens against such travel. The US increased the number of countries on its “do not travel” list, which contains countries with more than 500 Covid-19 cases per 100,000 residents in the past 28 days, which includes popular destinations such as the UK, Spain and the Maldives. The White House also confirmed that the Biden Administration is developing a plan to mandate vaccinations for almost all foreign visitors to the US.

It was revealed that two airline passengers who arrived into Toronto from the US in July were fined close to $20,000 each for non-compliance with entry requirements, according to Canada’s Public Health Agency. The visitors provided false information related to proof of vaccination and pre-departure tests and didn't comply with requirements related to on-arrival testing and staying at government-approved accommodation.

New York City will introduce a new policy requiring proof of vaccination in order to enter all restaurants, gyms and indoor entertainment venues. "If you're unvaccinated, unfortunately, you will not be able to participate in many things," Mayor Bill de Blasio said.

United Airlines will require all employees to get vaccinated against Covid-19 by no later than 25 October or risk losing their jobs. The move is a first for major US carriers and is expected to pressure rivals into similar moves. United joined more than a dozen large US corporations that have recently announced vaccine mandates for some or all of their workers, despite vaccines not being required by the government. These include Alphabet-owned Google, Facebook, Walmart and Tyson Foods.

After a "small number of positive cases" of Covid-19 were detected aboard a Carnival Cruise Line ship, a new fleetwide mask policy was introduced, requiring all guests to wear masks in some indoor areas.

Despite a jump in summer interest, total bookings at Tui are still 68% below summer 2019. The pan-European package-holiday group said about 4.2 million customers had booked for summer 2021, an increase of 1.5 million bookings since May.

The Covid-19 pandemic has changed the way the world works. Deliveroo said demand for its services strengthened despite pandemic restrictions easing. The food delivery group saw orders double in the first half of this year, while the value of its transactions also doubled. It was the first set of results from the company since its IPO in March. Garry White argues that the pandemic will force change for the better in his article, This terrible pandemic will force change for the better.

Shares in US-Listed WW International, formerly known as Weight Watchers, slumped by a quarter after it said people were putting diets on hold after lockdown. The weight-loss group, which is backed by talk show host Oprah Winfrey, had 4.9 million subscribers at the end of June, down from 5 million a year ago.

Economics

The UK economy is 4.4% smaller than it was before the Covid-19 pandemic. Nevertheless, it grew by 4.8% between April and June, as many businesses reopened following lockdown. Growth was fuelled by retail, restaurants and hotels, but the figure was below expectations of 5%.

US inflation hit 5.4% in July compared to last year, coming in slightly stronger than the 5.3% economists had expected. It was driven by a sharp increase in energy prices and the cost of used vehicles. On a month-to-month basis the consumer price index rose 0.5% during July, marking a slowdown from the 0.9% jump in June. The drop in the month-to-month inflation rate was the largest in 15 months and may reduce pressure on the Federal Reserve, which has repeatedly said bursts in inflation is temporary, to reel in its expansive monetary policy stance.

Geopolitics

The US Senate passed a sweeping $1tn infrastructure bill that will provide hundreds of billions of dollars to upgrade America’s crumbling transport systems, representing a big victory for President Joe Biden. The bill will now be sent back to the House of Representatives for approval before it goes to Mr Biden for a final signature.

Once thought of as a reformer, President Xi Jinping has presided over an authoritarian crackdown across China. We argue that this will have a major long-term impact on relations with the West in our article, President Xi places control over free enterprise.

Elections in Germany, Italy and France could change the political structure of countries in the European Union, but the likely outcome is more of the same. We look at the implications of upcoming elections in the EU in our article, Markets can live with the German election.

IPOs/M&A

Virgin Atlantic, the airline established by Sir Richard Branson in 1984, may be about to float on the London Stock Exchange, press reports suggest. The sector has been hard hit by the pandemic, with long-haul travel not expected to return to pre-Covid-19 levels until 2023. The airline was close to collapse last summer but, after months of talks, the airline secured a £200m injection from American hedge fund Davidson Kempner as part of a £1.2bn restructuring. Virgin Atlantic is 51% owned by Sir Richard’s Virgin Group, with US carrier Delta owning the remaining 49%.

Olam International, the global agricultural commodity trading giant, is considering raising £2bn through the IPO of its London-based food ingredients unit next year, according to reports. Olam Food Ingredients, in London, includes Olam’s cocoa, coffee and edible nuts businesses, while Olam Global Agri covers grains and animal feed, edible oils, rice and cotton and other commodities.

Takeovers of British companies hit a 14-year high by value in the first seven months of 2021, Refinitiv data showed. The total value of UK deals in the period was $198bn, a more than threefold increase on the same period last year. Deals involving a British company as the target totalled $34.9 billion in July, 5% less than June but more than seven times the value in July 2020. On Monday, defence and aerospace company Meggitt agreed to a £6.3bn takeover by US rival Parker-Hannifin.

Technology

Chinese technology giant Xiaomi said it plans to be the world's biggest smartphone maker within the next three years. The comments came after Xiaomi recently overtook Apple to become the second largest mobile brand. South Korea's Samsung Electronics currently holds the number one spot.

Shares in chipmakers fell on Friday, hitting Asian markets, after Morgan Stanley analysts said that while prices are still rising, global semiconductor supply is catching up with demand and they expect earnings growth expectations to start to reverse.

Environmental, social and governance (ESG)

A report on the damaging effects of altering weather patterns signalled a “code red” for humanity, according to the United Nation’s Intergovernmental Panel on Climate Change. The report is published ahead of the COP26 Climate Change conference to be held in Glasgow in November, which will be a key meeting for determining government climate policy. Prices were also hit towards the end of the week after the International Energy Agency warned that demand growth for crude and its products had slowed sharply as surging Covid-19 cases worldwide forced governments to revive movement restrictions.

Bond-market investors can learn lessons from ESG, read our article How safe are government bonds?

Cryptocurrency

AMC, the US cinema group that owns the Odeon brand, says it will allow customers to pay for movie tickets and concessions in Bitcoin by the end of the year. An increasing number of businesses have now started to accept digital currency as payment, including US mobile operator AT&T, Microsoft and Wikipedia.

Hackers stole $600m of digital currency in one the largest cryptocurrency heists ever. Blockchain site Poly Network said hackers had exploited a vulnerability in its system and taken thousands of digital tokens such as Ether. However, the hacker has now returned most of the stolen digital assets to the group.

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European stocks hit record highs again

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