Log inMarket Commentary 6th August 2018
Equity Indices
UK – The FTSE 100 was volatile over this period, rallying on Monday before falling by almost 2% between Tuesday and Thursday, however, the index did regain some ground on Friday, finishing the week down by around 0.5%. During the early part of the week, a sell off in technology stocks in the US prompted falls in equity indices. Mining stocks trading lower amidst further trade war fears also weighed on the FTSE 100.
Europe – The broad gauge for European equities, the FTSE All World Index – Europe ex UK, had a subdued start to the week before reversing much of the gains seen last week to finish the period down by approximately 1.4%. The German DAX index followed a similar trend, reversing some of last week’s gains to finish the week down by approximately 1.4%. After seeing falls throughout the middle part of the week, positive earnings news for financials, in particular banks, helped to boost European markets on Friday. Whilst positive rhetoric on trade boosted European markets last week, this week saw a return to rising tensions between the US and China which negatively impacted European equities and the DAX in particular.
US – The S&P 500 had a strong week, finishing the period up by approximately 1.3%. After last week’s disappointing earnings results continued to prompt a sell off in technology stocks during the early part of the week, news of Apple’s market capitalisation exceeding $1 trillion led the sector into a positive second half of the week. The S&P 500 appeared to shrug off escalating trade disputes between the US and China.
Asia – The Broad Asia Pacific Equities gauge, the FTSE All World Index – Asia Pacific, had a difficult week, finishing the period down by approximately 1.5%. A significant amount of the gain in the index last week amidst more progressive rhetoric was reversed, with trade tensions showing no sign of easing during the week. China announced that it had prepared a list of $60 billion worth of US imports which are targeted for tariffs should the US hike tariffs on Chinese imports. Whilst the forecast for Asia in general is positive, uncertainty regarding trade is likely to continue to cause volatility in the short term.
Bond Yields
UK – Despite the Bank of England’s Monetary Policy Committee announcing a 0.25% rise in the base rate, 10 year Government bond yields finished the week down slightly at around 1.33%. The decision to raise the rate itself was expected and already priced into the markets, although the committee members voting to raise rates by 9-0 was somewhat of a surprise. Ordinarily, a unanimous vote like this could cause yields to rise with the expectation of further base rate increases, however, the general consensus is that uncertainty regarding Brexit will limit the likelihood of further rate rises this year or early next year.
Europe – The 10 year German bund yield rose slightly before falling to finish the week down by almost 10%. Trade war fears prompted investors to seek perceived safe haven assets such as government bonds, which pushed yields lower.
US – 10 year US Treasury yields hit 3% at close of trading on Wednesday, the highest point since May, before finishing the week largely unchanged at approximately 2.95%. The US Federal Reserve decided to keep interest rates unchanged on Wednesday, whilst changing their description of the economy from ‘solid’ to ‘strong’. Analysts stated there is a high probability of the Fed deciding to raise rates by 0.25% at their September meeting.
Currency
GBP / USD – Current 1.3018 Previous 1.3103
GBP / EUR – Current 1.1229 Previous 1.1237
Sterling had a subdued week, weakening slightly against both the US dollar and the Euro as the Bank of England governor, Mark Carney, commented on the risks of a no deal Brexit.
Commodities
Gold – The spot price for gold fell slightly across the week, finishing at $1,215 per troy ounce. The Bank of England’s decision to raise interest rates seemingly negatively impacted the gold price with much of the fall in the price taking place on Thursday.
Oil – The Brent Crude oil spot price fell during the week, finishing at $73.21 per barrel. Saudi Arabia stated they will lower oil prices for September for all orders except those from the US in an attempt to win new buyers, but concerns around global supply continue.
Portfolios
With equity markets experiencing a difficult week, all of the Growth portfolios from Score 2 to Score 6 fell slightly across the week, with all except Score 2 narrowly underperforming their benchmarks. The Super Cautious portfolio was resilient and finished the week flat. The Lite portfolios were also down across the week, but all slightly outperformed their benchmarks. The pure Ethical portfolios had a much better week, all finishing marginally up and outperforming their benchmarks. The Ethical Bias portfolios did not escape the volatility in equity markets and fell across the week, but outperformed against the non ethical growth strategies.