Market Commentary 17th September 2018

Posted by melaniebond

Market Commentary 17^th September 2018

Equity Indices

The FTSE 100 had a positive run this week, however, it was unable to recover entirely from the fall experienced the previous week, finishing this period up by approximately 0.35%. The index bucked the trend of moving conversely to the pound, with sterling strengthening against the US dollar and the Euro across the week. Higher commodity prices during the first half of the week drove gains in energy stocks, with retailers listed on the FTSE 100 having a difficult time later in the week after their non-listed rival John Lewis announced that their profits for the first half of the year were down by 99%.

Europe

European equity markets also had a positive period, with the FTSE All World Index – Europe Ex UK finishing the week up by around 1.4%. The German DAX index also recovered some of the previous week’s falls by rising approximately 1.15% across the week. An update on Germany’s economic sentiment index released during the week showed analysts feel slightly more upbeat about the economy, with positive comments from Mario Draghi, the President of the European Central Bank (ECB), also boosting markets. The Turkish central bank raised their benchmark interest rate to 24% in an attempt to combat increasing inflation and currency weakness, with markets reacting positively to this announcement.

The S&P 500 index experienced positive performance throughout the week, finishing the period up by around 1%. Despite data released during the week showing weaker than expected inflation and retail sales for August, the risk on appetite of investors towards global equities in general benefitted US Stocks. President Trump reportedly instructed his aides on Thursday to proceed with $200 billion worth of tariffs on Chinese imports. Whilst there is still an ongoing concern of the economic impact of significant tariffs, investors seemingly shrugged this off with US stocks rebounding quickly from a brief sell off.

Asia

After a subdued start to the week, Asian equities also benefitted from the risk on mood of investors, with the FTSE All World Index – Asia Pacific finishing the week up by around 1.9%. Asian equities are continuing to bear the brunt of trade war concerns, but the improved sentiment between the US and Beijing during the early part of the week helped equities in the region. Technology stocks in particular were strong performers during the week.

Bond Yields

The 10-year Gilt yield continued to improve this week rising circa 4% to the highest point seen since May, with yields at 1.53% by the end of Friday. Yields improved as the pound strengthened and the Bank of England announced that it has raised its forecast for economic growth in the UK for the third quarter of the year from 0.4% to 0.5%.

Europe

The risk on appetite towards equities caused investors to move away from safe haven assets with Government bond yields rising as a result. In addition the positive news from the ECB and Turkey’s central bank meant an improvement in yields, with the 10-Year German Bund Yield rising from 0.4% to 0.45% across the week. The risk on attitude of the week saw funds re-allocated towards riskier assets, with yield spreads narrowing between German Bunds and riskier government bonds from periphery states such as Italy and Portugal.

US 10-Year Treasury yields rose slightly during the week to finish the period at 3%. As with other geographical regions, the demand for safe haven assets was dampened this week with Treasury yields rising as a result. Analysts commented that the rise in yields was held back by weaker than expected US inflation and retail sales data for August. Weaker data in these areas does not support the Federal Reserve’s tightening monetary stance and the market reacted accordingly with yields only rising by a small amount in comparison to Government bonds elsewhere in the world.

Currency

GBP / USD – Current 1.3111 Previous 1.2920

GBP / EUR – Current 1.1232 Previous 1.1183

The pound rose by around 1.5% against the dollar during the week, with strength in the Eurozone currency causing the rise against the Euro to be more limited at around 0.4% for the week. The EU’s chief Brexit negotiator, Michael Barnier, commented that a deal is likely to be reached by November which helped to boost the pound. In addition, data also showed that the UK labour marketing is tightening, with the increased competition starting to drive an improvement in wages. Given the impact that rising wages can have on economic demand and inflation, the pound reacted positively.

Commodities

Gold

The Gold price was relatively unchanged for the week, with the price per ounce at around $1,195 on Friday. There was a mid-week bounce as commodity prices in general rose, however, the price fell back with positive sentiment towards global equities, Russia and Turkey raising their key interest rates and developed market currencies strengthening all weighing negatively on the Gold price.

Oil

As with other commodities, the Brent Crude price rallied during the middle of the week, before reversing much of this to finish the week at around $78.1 per barrel, an increase of around 0.8% across the week. The falls in the latter part of the week came as OPEC announced for the second month in a row that it had revised down its global oil demand estimate for the year.

Portfolios

Equity markets had a positive week, however, the diversified nature of the portfolios meant that the impact of this was more limited amidst less positive performance in other asset classes. All of the growth portfolios were marginally down across the week, with the only exception being the Super Cautious portfolio which was up by 0.02%. Score 2 and Score 4 narrowly underperformed their respective benchmarks, with all of the other growth strategies outperforming their benchmarks for the week. The Ethical and Ethically Biased portfolios were similarly impacted, with all of them posting marginal falls for the week, however, all of these portfolios outperformed against their respective benchmarks. The passive Lite portfolios were marginally down, apart from the higher risk Score 6 portfolio, which benefitted from its significant equity exposure to rise 0.09% across the week. All of the Lite portfolios apart from Score 2 outperformed their benchmarks.

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