Market Commentary 29th October 2018

Posted by melaniebond

Market Commentary 29^th October 2018

Equity Indices

The FTSE 100 continued to be volatile this week, with the index experiencing further falls which brought it to near its lowest level for 12 months. It was notable however that markets were attempting to recover at certain points, with the index posting daily rises on both Wednesday and Thursday. The index was down by approximately 1.5% across the week after investors continued to ditch equities across the globe. Advertising and Public Relations giant WPP experienced a particularly torrid week, with the company’s share price falling 14% on weaker than expected third quarter results and the CEO commenting that ‘radical thinking’ is required to turn the company around.

Europe

European equity markets fared worse than the UK this week, with the FTSE All World Index – Europe ex UK falling by around 3.3% across the week. The German DAX index fell by 2.8%. Despite credit rating agency Moody’s deciding to keep Italy’s sovereign debt rating outlook as ‘stable’, markets remained concerned about the Italian government’s decision to defy EU fiscal rules. European markets did experience a slight recovery on Thursday as the Euro fell (benefitting exporters) and positive corporate results were published in France. This was short lived however, with a number of disappointing company results in the Technology sector, both in Europe and elsewhere across the globe, causing stocks to fall again on Friday.

US equities struggled this week, with the S&P 500 index falling by around 3.6%. A number of earnings results were released this week from companies including Microsoft, Intel, Alphabet (owner of Google) and Amazon. Whilst analysts pointed out that these results were still strong, they were weaker than previous quarters this year. This fuelled concerns that global growth is slowing, prompting investors to sell off equities. Some companies did post better than expected results, with McDonalds posting higher than expected sales growth and telecoms giant Verizon beating profit estimates. The US dollar strengthened during the week which did not help blue chip companies trading globally and energy stocks in particular suffered as the oil price fell.

Asia

Asian equities suffered the most during the sell off in equities this week, with the FTSE All World Index – Asia Pacific falling by approximately 4.6% across the period. China’s Hang Sang Index and Japan’s Nikkei 225 index both dropped sharply, with Vietnam and Taiwan also seeing their stock markets fall during the week. In contrast, Pakistan and Sri Lanka both saw their stock markets rise. The Chinese government announced further stimulus measures this week as part of their attempt to boost infrastructure investment and consumption. China is hoping that this will offset some of the impact the US trade war will have on domestic economic activity.

Bond Yields

The 10-Year Gilt yield fell by approximately 10% across the week to reach a 2 month low, with yields reaching 1.38% on Friday. Investors across the globe ditched equities in favour of the security of sovereign debt, with demand for UK government bonds rising as a result. Despite negative rhetoric regarding Brexit negotiations, these assets were still in favour this week as a result of the risk-off attitude towards equities, with yields falling as a result.

Europe

10-Year German Bund yields fell by around 22% across the week to reach 0.35% on Friday. Government debt across Europe was in demand this week, but it was notable that Italian government debt did not benefit from these inflows as investors remained concerned about the debates between the Italian government and the EU. The spread between the 10-Year German Bund yield and the 10-year Italian debt remains wide at over 3%. Mario Draghi, head of the European Central Bank, played down risks to the European economy and weaker than expected growth at a conference in Frankfurt on Thursday, stating that he still expects inflation to rise as a result of the labour market continuing to tighten and wages continuing to increase.

The yield on 10-Year US government debt ticked downwards this week to reach 3.08% on Friday. Demand for US treasury debt rose as a significant sell-off in US equities took hold. Data released during the week showed that the US economy grew at an annualised rate of 3.5% during the third quarter of the year, which was higher than market expectations. A significant driver of this was increased consumer spending, which grew at an annualised rate of 4% during the third quarter.

Currency

GBP / USD – Current 1.2835 Previous 1.3024

GBP / EUR – Current 1.1253 Previous 1.1365

The pound was 1.5% lower against the dollar during the week and around 1% higher against the Euro. The pound fell across the week as Brexit uncertainty continued to weigh on the currency. The US dollar strengthened during the week and the Euro fell. Despite positive rhetoric from the ECB during the week, data showing weaker than expected Eurozone business growth casted doubts on the central bank’s ability to continue to withdraw from its stimulus programme.

Commodities

Gold

The spot price of Gold rose by approximately 1% across the week to reach $1,233.53 per ounce. Surprisingly, gold did not benefit significantly from the increased levels of volatility in stock markets during the week. The rise in the spot price shows that investors were favouring Gold as a ‘safe haven’ asset, however, with the majority of Gold trades priced in dollars, Gold would have appeared less attractive to investors holding other currencies this week as the dollar strengthened.

Oil

The price of Brent crude slipped further this week, reaching $77.62 per barrel on Friday. Despite ongoing issues regarding relations with Saudi Arabia and the rest of the world, the oil producing nation warned this week of an oversupply amidst slowing global growth and issues from trade wars, which caused prices to fall slightly.