Market Commentary 7th January 2019

Posted by melaniebond

Market Commentary 7^th January 2019

Equity Indices

Equity markets in most regions were positive this week, recovering from the falls seen in the week prior to New Year’s Eve. UK equities were in negative territory up until Friday before being boosted by positive data on the US economy. The FTSE 100 index rose by 1.6% across the week, posting its biggest weekly gain for 2 months. Most stocks posted gains for the week, with notably positive performance for companies in the mining and oil sectors as a result of higher oil and commodity prices.

Europe

European equity markets also saw gains this week, with the FTSE All World Index – Europe ex UK up by 1.4% for the week. Germany’s export sensitive DAX index posted a gain of 1.8% and was lifted by news of the Chinese government confirming ministers from Beijing will hold talks with trade officials from Washington in the coming week. Apple issued its first revenue warning for 12 years, citing weaker demand in China, leaving technology stocks in Europe badly impacted. Austrian company AMS, who provide the facial recognition sensors used in the latest iPhones, saw their share price fall by 23% on Thursday. The owners of Luxury brands, such as Louis Vuitton, Gucci and Burberry were also negatively impacted as China is one of the fastest growing markets for these brands.

US equities had a bad start to 2019, with the S&P 500 falling almost 2.4% by Thursday. Weak US factory data for December and Apple’s revenue warning impacted the wider market, with 9 of the 11 major sectors in the S&P 500 index falling. This was reversed on Friday however, with the index finishing the week up by around 1%. The market was lifted by a strong report on employment and wages in the US, together with the Federal Reserve chairman stating they will be patient with interest rate rises and are listening very carefully to the market. Officials from Beijing and Washington agreed to meet over the coming week to discuss trade issues, which also boosted markets on Friday.

Asia

Asian equities as a whole suffered during the early part of the week, with the FTSE All World Index – Asia Pacific falling by around 1% on New year’s Eve. The index recovered somewhat during the remainder of the week but posted a loss of around 0.65% for the period. Weak data on Chinese manufacturing, as well as comments from Apple suggesting slowing demand in China, impacted on technology companies across Asia, with stocks in other sectors which have large exposure to China also suffering. Japan’s Nikkei 225 index finished the week down by 0.5% after companies such as Honda, Bridgestone and Subaru, who all have significant exposure to China, saw falls in their share prices. Asian equities were lifted on Friday on news of officials from the US and China agreeing to meet as well as comments from the Federal Reserve indicating less aggressive US interest rate hikes.

Bond Yields

The 10-Year Gilt yield was unchanged for the week at 1.28% with little in the way of updates on the UK economy or Brexit to prompt any significant changes to yields. The 10 Year Gilt Yield did fall during the early part of the week to around 1.19% on Thursday, after falling equity markets prompted investors to allocate capital into bonds, however, this was reversed by close of business on Friday.

Europe

10-Year German Bund yields fell by 12.5% across the week, with yields sitting at around 0.21% on Friday. Yields on 10 Year Bunds were on a downward trajectory for much of the week, falling as low as 0.15% on Thursday. German Bunds remain a perceived safe haven asset and are therefore usually a benefactor of capital flowing away from equities, which was the case for much of this week until a recovery in equity markets across the globe on Friday prompted Bund yields to spike upwards.

US 10 Year Treasury yields fell by around 0.4% across the week, reaching 2.67% on Friday. During the week, yields followed a similar pattern to UK and German government bonds, i.e. falling as investors chose these assets over equities, before spiking on Friday as equity markets recovered. Comments from the Chairman of the Federal Reserve, Jerome Powell, suggesting that the central bank may take a less aggressive approach to future interest rate rises also suppressed yields.

Currency

GBP / USD – Current 1.2723 Previous 1.2754

GBP / EUR – Current 1.1164 Previous 1.1122

Pound Sterling was down 0.25% against the US dollar for the week, with traders blaming weakened sentiment on the Pound following the release of data on Wednesday which suggested that British factories were stockpiling ahead of Brexit. With the Euro also weakening during the week, the Pound was up 0.37% against the European currency for the period.

Commodities

Gold

The Gold spot price built on the rise seen during the last part of 2018 to post a gain of 0.28% for the week. The spot price was around $1,286 per ounce on Friday after falling from a high of almost $1,300 seen on Thursday. As with government bonds around the globe, gold benefitted from capital flowing away from equities.

Oil

Oil prices rose steadily throughout the week, with comments regarding an economic slowdown in China seemingly having no impact on prices. The price of Brent Crude reached $57 per barrel on Friday. OPEC agreed in December to cut production by 800,000 barrels per day and so far this is seemingly achieving the desired effect of propping up prices.