Market Commentary 3rd December 2018

Posted by melaniebond

Market Commentary 3^rd December 2018

Equity Indices

The FTSE 100 continued the slide from the previous week and finished the period down by 0.8%, with the index failing to sustain a short lived mid week rally. Shares in holiday company Tui along with Easyjet and British Airways fell during the week following a profit warning from rival Thomas Cook. Late in the week the mining sector struggled, with Rio Tinto, Anglo American and Antofagasta down as a result of concerns regarding a slowdown in China’s manufacturing sector, which is a key market for mining companies.

Europe

European equity markets in general fared better than the UK this week, with the FTSE All-World Index – Europe ex UK up by 0.1% across the week. With automotives being the worst performing sector this week, Germany’s DAX index was down by 0.85%. The European Union started to take a softer tone with the Italian government regarding their budget plans, which helped Italy’s stock market to outperform Germany, France and Spain this week. Italian banking shares rallied, with financial stocks in other areas of Europe benefitting as a result. Deutsche Telekom (T-Mobile) confirmed they will acquire Tele2 in the Netherlands following approval from the European Commission, which provided a boost to telecoms shares across Europe on the hope of further mergers and acquisitions in the sector.

US equities had a strong week, with the S&P 500 index up by 3.2% for the period. The Chair of the Federal Reserve, Jerome Powell, commented during a speech that interest rates are now just below estimates of a level that neither brakes nor boosts a healthy economy. This provided a welcome boost to US equities, along with investors being hopeful that President Trump and China’s President Xi would agree a positive outcome upon meeting over the weekend at the G20 summit. This week saw a slight recovery in Technology stocks, with November proving to be a torrid month overall for the sector.

Asia

Asian equities experienced a positive week, with the FTSE All World Asia Pacific index up by 1.6%. China’s stock market rebounded this week, with Hong Kong’s Hang Seng index up by 2% as investors became more confident that the US and China would make progress on trade talks. Japan’s Nikkei 225 index was up by around 2.5% after a stronger Yen helped provide a boost to the country’s exporters. India was one of the strongest performing regions this week, whilst stocks in neighbouring Pakistan lagged following the country’s central bank deciding to raise base interest rates to 10%.

Bond Yields

The 10-Year Gilt yield fell by 3.5% across the week with yields reaching 1.36% on Friday. This was in line with falling yields across the globe following dovish comments from the US Federal Reserve. There was little change in terms of Brexit to impact UK government bond yields this week, as it remains uncertain as to whether the draft withdrawal agreement announced by Theresa May will be voted through Parliament at the first attempt on the 11^th December.

Europe

10-Year German Bund yields fell by nearly 14% this week, reaching 0.31% on Friday. Government bond yields elsewhere in Europe fell, with the spread between 10 Year German and Italian government debt narrowing to 2.9%, down from the peak of nearly 3.3% earlier in November. Eurozone inflation figures released for October showed that this remains subdued, with declining fuel prices along with weak domestic inflationary pressures across Europe prompting a reduction in the headline inflation rates.

US 10 Year Treasury yields fell by 2% across the week, with yields hovering around the 3% mark on Friday. Bond yields fell as investors’ expectations of future interest rate rises reduced. Jerome Powell’s speech indicated that the Federal Reserve’s policy committee will likely shift towards a more data dependent approach in the near future, which the market viewed as a sign that the rate of future interest rate rises will slow.

Currency

GBP / USD – Current 1.2784 Previous 1.2854

GBP / EUR – Current 1.1276 Previous 1.1306

Sterling fell by around 0.55% against the US dollar and 0.3% against the Euro this week. The pound initially climbed against both the dollar and the Euro during the early part of the week, before slipping after the governor of the Bank of England, Mark Carney, commented that a no deal Brexit would ‘send the pound plunging’ and trigger a recession. Concerns that Parliament could vote against the proposed withdrawal deal are continuing to weigh on the Pound.

Commodities

Gold

The Gold spot price fell by 0.25% across the week to reach around $1,220 per ounce on Friday. There was downward pressure on the price this week following reduced global demand. This was particularly evident after positive sentiment regarding US-China trade talks prompted a rise in the dollar, making gold more expensive to investors holding other currencies.

Oil

Oil prices continued to decline to reach a drop of around 20% for November. Brent crude prices fell by 2.7% across the week to reach around $59 per barrel. Increasing oil inventories across the globe have continued to reduce prices, despite expectations that OPEC and its allies will agree to reduce oil output at their meeting in Vienna on the 6^th December.