UK Capital Market Assumptions and Summary: April 2021
Apr 29, 2021 10:37:36 AM
Each quarter, we use our market-proven global stochastic asset model to generate a range of capital market assumptions based on the latest market data. Below we provide a brief market summary. A download link to the full report is also available.
Quarter 1 2021 Market Summary
The first quarter of 2021 saw the continuation of improved investor risk sentiment across global financial markets. In equities, US stocks led the way but European and, with a strong pound behind them, UK stocks were not far behind. Japanese stocks were not strong enough to overcome the weakness of the yen. Over the quarter, the apparent change in global markets was the sharp rise in bond yields or, equivalently, falling bond prices. Against the backdrop of the ongoing global roll-out of COVID-19 vaccines, easing lockdown restrictions leading to re-opening of local economies and positive news around further US fiscal stimulus provided optimism around the prospect of the world’s economic recovery.
Below are some quarterly highlights from around global financial markets;
Global equities began the year in positive territory, supported by the ongoing roll-out of COVID-19 vaccines and positive news around further US fiscal stimulus.
US equities benefitted as President Biden confirmed a fiscal stimulus package of $1.9 trillion, followed by the promise of $2 trillion in spending on infrastructure projects.
European equities made a positive start to the year, as sectors that underperformed during 2020 began the year on a positive note supported by increasing prospects of a global economic recovery.
UK equities performed well during the period. Sectors such as materials, energy, and financials continued to recover well. There was also positive news for the domestic markets, benefitting from the positive outlook for the UK economy.
Emerging and Asian markets began the year well, having passed the challenges currently facing western economies around COVID-19 but face some strong headwinds from the strengthening US dollar. Sentiment weakened towards the end of the quarter as vaccination rollouts slowed and lockdown restrictions were reintroduced in some countries.
Government bonds performance was weak across regions as yields rose (equivalently falling bond prices). The 10-year US Treasury yield rose from 0.91% to 1.74%. The UK 10-year yield increased by 65 basis points (bps) to 0.88%. In Europe, the German 10-year yield increased from -0.57% to -0.33%, while Italy’s 10-year yield rose from 0.52% to 0.63%, and Spain’s 10-year yield increased from 0.06% to 0.34%.
Corporate bonds outperformed government bonds but with Investment-grade bonds still delivering negative returns, due to a sharp rise in yields. High yield bonds fared better amid an increase in investor risk-sentiment for riskier assets.
Commodities benefitted from positive vaccine news that provided further hope of a 2021 global economic recovery.
To read more about markets, economy and outlook, please download the full report.
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