Market Commentary 28th August 2018

Posted by melaniebond

Market Commentary 28th August 2018

Equity Indices

The FTSE 100 finished the week moderately down by approximately 0.2%, bouncing back from the lows seen on Thursday, when the index had been slightly lower. It was a quiet week overall for corporate earnings and the muted trading action reflected this throughout the week. A weaker dollar was dragging on the index, which contains a high proportion of revenues in US dollars.

Europe

In contrast to UK stocks, European stocks had a much stronger week. The broad gauge for European equities, the FTSE All World Index – Europe ex UK, was up approximately 2.2% for the week, with rallies in four of the five trading days. A risk on mood helped European equities to advance, bouncing back from the last two weeks of losses.

In the US, the S&P 500 continued to climb, finishing the week up 0.6% and reaching a new all-time high. Investors have been looking through the noise surrounding the China trade spat and have instead been focusing on the robust US economic growth and accelerating earnings picture. Whilst the trade spat with China is a concern, there is still tremendous optimism for holding US stocks.

Asia

In Asia, the broad Asia Pacific equities gauge, the FTSE All World Index – Asia Pacific, ended the week up by approximately 0.45%. The index was in positive territory across the entire week, with small rallies in four of the five trading days. Asian equities appeared not to waver despite the US and China wrapping up two days of trade negotiations in Washington on Thursday with little sign of any significant progress.

Bond Yields

Gilt yields advanced through the week, with the 10-year gilt yield rising by circa 6 basis points to 1.28%. A more risk on sentiment saw yields rise as investors sold government bonds in favour of riskier assets, reversing the trend of falling gilt yields and rising prices over the last two weeks. The outlook for limited UK interest rate rises and uncertainty regarding the outcome of Brexit negotiations are likely to limit the upwards direction in UK gilt yields and the 10-year gilt yield is still well below the 1.45% level seen in April this year.

Europe

On the continent, European bond yields also rose, with the 10-year German bund yield finishing the week up 4 basis points at 0.34%. It was a similar story in Europe as with the UK, with a more positive risk sentiment acting to push yields higher and reversing the trend of falling bond yields seen over the last two-week period.

Yields were relatively unchanged in the US with the 10-year Treasury yield finishing the week 1 basis point lower at 2.81%.

Currency

GBP / USD – Current 1.2845 Previous 1.2770

GBP / EUR – Current 1.1039 Previous 1.1189

Sterling advanced moderately against the dollar, finishing the week up approximately 0.6%. Much of this was a result of a weaker dollar, which had come under pressure following president Trump’s swipe at the Fed, regarding its decision to raise rates. Trump has been vocal in favouring low rates to allow economic growth to continue expanding, however his public comments have crossed the line of past presidents’ who have not commented on the actions of the independent Fed, who control interest rates free from political pressure.

Sterling weakened against the Euro, finishing the weak down approximately 1.3%. Brexit concerns were again the driving force here. With the deadline for a trade negotiation being made with the EU drawing ever closer, there are concerns that either a deal will not be reached, or it will be hashed out at the last minute and this is weighing on confidence, which is being reflected through sterling against the euro. Additionally, the government’s timing in publishing its’ guidance in case of a no-deal Brexit on Thursday did little to reassure concerns that the government has made little progress in terms of reaching a deal and are ill prepared in the event of no-deal outcome.

Commodities

Gold

The spot gold price edged higher, rising circa 1% to $1,205 per troy ounce. A weaker dollar helped the gold price to rise, which has been steadily declining over the past several months amidst a strengthening dollar. Despite a more risk on sentiment, with stocks rising and bond yields edging up throughout the week, gold still managed to advance, which you would usually expect to underperform due to its safe-haven status. This week’s moves demonstrate how much of the variation in the gold price over the past several months has been driven by the relative strength of the US dollar against major currencies around the world.

Oil

Brent crude prices rose sharply, finishing the week up circa 5% at $75.82 per barrel. The rise was on concerns that US sanctions on Iran are already reducing global supply at a time where demand continues to remain robust.

Portfolios

With the positive equity market performance over the last week we saw the main growth strategies all rising, with the highest risk score 6 portfolio up 0.53%. All growth portfolios, including the Super Cautious portfolio, outperformed their benchmarks which rose only very moderately. In contrast, the passive Lite portfolios were narrowly down, ranging from -0.06% to -0.12% for the different risk scores, leading to a slight divergence from the benchmarks which were narrowly positive. The Ethical portfolios continued to perform well with the portfolios up ranging between 0.15% to 0.33% for the different risk scores and outperforming their respective benchmarks. The Ethical Bias portfolios were narrowly down, ranging from -0.02% to -0.08% for the different risk scores and slightly diverging from their benchmarks which rose very moderately.