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Market roundup
Several stocks markets edged higher this week as investors cheered positive economic data on both sides of the Atlantic.
Most US and European indices started May in the green, with the S&P 500, the Dow and the STOXX 600 adding 0.3%, 0.7% and 0.2%, respectively, on Monday.
Stocks slumped the following day after US Treasury secretary Janet Yellen said a modest increase in interest rates could be on the cards. The FTSE 100, which was closed on Monday for the May bank holiday, finished Tuesday down 0.7%, while the Nasdaq Composite and Germany’s Dax slumped by 1.9% and 2.5%, respectively.
Markets rallied on Wednesday after a rise in commodity prices boosted miners and data suggested the eurozone economy is starting to recover from the pandemic. The Dax rebounded 2.1%, the Dow hit a new closing high, and the FTSE 100 added 1.7% to end the session above the 7,000 mark. The Nasdaq extended declines, falling 0.4% as growth stocks suffered.
The FTSE 100 edged up 0.5% on Thursday after the Bank of England voted to maintain interest rates and raised its growth forecast for the UK economy. Optimism extended into Friday morning, with the blue-chip index up 0.3% at the start of trading.
Company in focus: Virgin Money
Virgin Money swung to a statutory pre-tax profit of £72m in the six months ending 31 March 2021 from a loss of £7m a year ago, and said it was cautiously optimistic about the improving outlook.
The increase in profits was largely driven by an 84% reduction in impairment charges – i.e., the amount it put aside to cover expected bad loans caused by the pandemic.
Underlying pre-tax profit more than doubled year-on-year to £245m, however underlying operating income fell by 9% to £743m amid a “lower rate environment and a subdued economic backdrop”.
Mortgage balances remained stable at £58.3bn, whereas personal lending fell by 3.2% to £5.1bn because of “subdued customer demand across the market”. Business lending declined by 0.6% to £8.9bn.
David Duffy, chief executive officer, said: “We’re continuing to manage through what it still an uncertain economic backdrop, but the bank is well placed, with a strong balance sheet, and through ongoing strategic delivery we have a clear path to long-term, improved sustainable returns.”
Economic roundup
This week brought further signs that the global economy is recovering from the pandemic, with encouraging data released from the US, the UK and the eurozone.
The UK’s manufacturing sector continued to expand in April, with the seasonally adjusted IHS Markit/CIPS purchasing managers’ index (PMI) rising to 60.9 from 58.9 the previous month. This was the highest reading since July 1994. Production increased for the eleventh successive month, while the loosening of lockdown restrictions and rising backlogs of work boosted output growth.
Car sales also picked up in April as showrooms reopened. A total of 141,583 new cars were registered, compared with just 4,321 in the same month a year ago during the first lockdown. However, this is still around 12.9% down on an average April over the last decade, according to the Society of Motor Manufacturers and Traders. Elsewhere, mortgage lending rose by the highest monthly amount on record in March as people sought to buy property ahead of the expected ending of the stamp duty holiday. Bank of England figures showed net mortgage borrowing totalled £11.8bn, the strongest since records began in April 1993.
On Thursday, the Bank of England upgraded its 2021 growth forecast for the UK economy from 5.0% to 7.25%. It said GDP is expected to rise sharply in the second quarter, although it will still be around 5.0% below its level in the fourth quarter of 2019, before the pandemic struck. Consumer spending is expected to be a main driver of the recovery, with people spending an estimated 10% of their accumulated lockdown savings. The bank voted to maintain interest rates at 0.1% and leave its asset purchasing programme unchanged.
In the US, the service sector surged in April as the economy picked up. IHS Markit’s US services PMI rose to 64.7 from 60.4, the highest since the survey began in 2009. Businesses reported the fastest increase in new business on record, leading to a surge in hiring. Separate figures from ADP showed US companies created 742,000 new jobs in April, marking the biggest jump in private company payrolls since last September, although it was less than the 800,000 new jobs forecast by economists.
April was also a better month for the eurozone, with IHS Markit’s composite PMI rising to 53.8 in April – the highest since July 2021. The services sector rose to 50.5, thereby returning to growth after shrinking for seven months in a row. Business expectations also surged to their highest level in a decade. Chris Williamson, chief business economist at IHS Markit, said the survey suggests the eurozone will return to growth this quarter, ending the double-dip recession.
“Barring any further wave of infections from new variants, Covid restrictions should ease further in the coming months, driving a strengthening of service sector business activity which should gain momentum as we go through summer,” Williamson added.