Market Commentary 24th September 2018

Posted by melaniebond

Market Commentary 24th September 2018

Equity Indices

The FTSE 100 had another positive period, rising by approximately 2.6% after a slow start to the week. The index also continued the trend of rallying even as Sterling strengthened against the US Dollar and the Euro. It was another optimistic week for mining stocks and energy companies, with oil prices hitting a 12 month high. Bookmakers were negatively impacted by further calls from politicians to clamp down on gambling advertisements during live sporting events, with the owner of Ladbrokes Coral group notably impacted. Financial Services company Jardine Lloyd Thompson (JLT) Group PLC, who are listed on the FTSE 250 index, saw their share price rally 32% on Tuesday after a £4.3 billion takeover offer from US based insurer Marsh & McLennan.

Europe

In Europe, equity markets also had a strong week, with the FTSE All World Index – Europe ex UK rising by around 2.2% and the German DAX index rallying by 2.8%. Concerns around global trade tensions eased last week and investors appeared to be more focused on positive economic and corporate news. German automobile manufacturers, who are some of the continent’s largest exporters, were amongst the strongest performing stocks after a difficult start to the week. Mining stocks and European banks also rose across the week.

In the US, equity indices continued to trade near record high levels, with the S&P 500 index climbing by around 1.4% across the week to finish at 2,929.67 points. Investor sentiment was more positive with freshly proposed tariffs between the US and China being less severe than expected. US equities have largely remained resilient to trade war fears, with investors focusing on the strong domestic economy and improving corporate earnings. US consumer confidence and small business optimism are near post financial crisis highs and this is expected to increase with the impact of corporate tax reforms starting to take hold. Movements in the mega cap US technology stocks continue to capture headlines, with strong performance in the first half of the week followed by falls on Thursday and Friday. As with elsewhere in the globe, miners and energy stocks were strong performers.

Asia

Asian equities appeared to be the biggest benefactor of easing concerns regarding the US-China trade disputes. The FTSE All World Index – Asia Pacific rallied by around 3.2% across the week. Chinese equity markets also performed strongly, leading some analysts to comment that concerns regarding the actual economic impact of Tariffs between the US and China are waning. In Japan, Prime Minister Abe was re-elected as leader of the Liberal Democratic Party for a further three years on Thursday, which was well received by markets.

Bond Yields

The 10-Year Gilt yield rose during the first half of the week to hit a 7 month high of 1.618% on Wednesday, before falling back to around 1.55% by Friday. Inflation data released on Wednesday showed a higher than expected rise of 2.7% in the Consumer Prices Index (CPI) during August. This was some 0.3% higher than predicted by economists, which prompted a more positive view on the UK economy and expectations of future interest rate rises by the Bank of England. Retail sales growth in the UK for August also exceeded market expectations which was well perceived by bond markets. The rise in yields was short lived however, with criticism from EU leaders regarding the UK government’s ‘Chequers Plan’ on Friday causing yields to pull back.

Europe

Government bond yields in Europe followed a similar pattern to UK gilts, with the German 10-year Bund yield rising throughout the early part of the week to hit a 4 month high of 0.506%, before falling back again to finish the week largely unchanged at 0.46%. Purchasing Managers Index (PMI) data released during the week showed Eurozone business growth has eased during September which dented investor confidence. Renewed Brexit concerns, as well as internal disputes within the Italian government also caused investors to allocate capital towards the perceived safe haven of German government debt.

In the US, 10-year Treasury yields rose across the week to finish at 3.06% on Friday. A further interest rate rise by the Federal Reserve is expected this week following positive job creation, positive GDP numbers and a rise in inflation since the Fed’s last policy meeting. The general consensus is that this is already largely priced in to US government bond yields, however, the recent positive economic data will have improved the market’s expectation of further interest rate rises in 2019 and beyond. The risk on attitude of investors also seems to have driven yields upwards, with capital being allocated away from government debt towards equities during the week.

Currency

GBP / USD – Current 1.3271 Previous 1.3111

GBP / EUR – Current 1.1132 Previous 1.1232

The pound rose against both the US Dollar and the Euro during the early part of the week, helped in part by a weaker US dollar, however, this was sharply reversed on Friday after Prime Minister Theresa May described the UK and EU as being at an “impasse”. Mrs May commented that no deal is better than a bad deal, which startled the confidence of currency investors who sold off Sterling.

Commodities

Gold

The Gold price was mixed during the week but finished the period at $1,200 per ounce on Friday. The risk on attitude of investors globally weighed on the Gold price and stronger economic data in the US also means there continues to be little incentive for investors to allocate capital towards Gold.

Oil

The price of Brent Crude reached its highest point for 12 months during the week, exceeding $80 per barrel, before finishing the week at around $79. On Tuesday, reports of Saudi Arabia saying they would be comfortable letting oil prices rise above $80 per barrel appeared to drive an increase in the price. News released during the week also showed that Crude oil inventories in the US have built up recently, but supply concerns remain and this, coupled with increased consumption expectations globally over the coming years, are likely to continue to drive prices upwards.

Portfolios

The portfolios performed well this week, particularly during the latter half when both equity and fixed interest funds experienced gains. All of the growth strategies, from Super Cautious to the Score 6 – Very Adventurous portfolio posted positive returns and outperformed their benchmarks. The Score 4 – Moderate portfolio was up 1.47% across the week, versus a return of 0.48% in the benchmark. The Ethical and Ethically Biased portfolios performed similarly, all posting positive performance and all but one outperforming their respective benchmarks. The passive Lite portfolios also captured good performance for the week despite most underperforming the equivalent active portfolios. All of the Lite portfolios beat their benchmarks, with the Score 4 Lite strategy rising 1.2% across the week.