Market Commentary 25th February 2019

Posted by melaniebond
Market Commentary 25th February 2019 from Charlie Hancock
Equity Indices
The FTSE 100 index, which comprises companies generating the majority of their income overseas, was hampered by the rise in Sterling this week. The FTSE 100 fell 0.57% across the week, with significant falls in some of the index’s largest stocks adding to the negative currency impact. The more domestically focussed FTSE 250 index rose by 0.7%.

HSBC reported disappointing results on Tuesday which resulted in their share price falling by around 6% across the week. Sainsbury’s share price fell by 18% during the week after the Competition and Markets Authority expressed serious concerns over the proposed merger of Sainsbury’s and Asda. Energy supplier Centrica’s share price was down by 11% after issuing a disappointing trading update.

European equity markets were in positive territory this week, with the FTSE All World Index – Europe ex UK rising by 0.8% and Germany’s DAX index rising by 1.4%.

European equities have been under pressure lately as companies on the continent announce results, with squeezed profit margins becoming a common theme. Trade issues have also had a greater impact on Europe than many other regions, with key European sectors being particularly sensitive to trade issues worldwide.

This week stocks were provided with a boost from progressive comments by Donald Trump suggesting that proposed Tariffs on Chinese imports could be delayed. The automotive sector was a key benefactor, with Mercedes-Benz owner, Daimler, and BMW both rising by 3.6% across the week.

The S&P 500 rose by 0.46% to its highest level since November after a subdued start to the week. Most of the index’s gains came on Friday as investors digested a series of headlines regarding US-China trade talks following a meeting between senior officials from both sides.

US equities saw modest gains as the market priced in an increased probability of a delay to proposed tariffs on Chinese imports to the US due to take effect from the 1st March. 9 of the 11 major sectors in the S&P 500 index were positive on Friday, with Technology, Materials and Utilities all rising strongly.

The biggest drag on US equities this week was the consumer staples sector, which fell by around 0.5% after food giant Kraft Heinz Co reported a loss for Q4 2018, resulting in their share price falling by 27%.

The FTSE All World Index – Asia Pacific was up by 1.42% across the week. Japan’s trade sensitive Nikkei 225 rose by around 0.7% to its highest level for 2 months. Hong Kong’s Hang Seng Index was up by 1.7%.

Asian equities also rose as markets gradually began to price in the likely delay in the US imposing further Tariffs on Chinese imports from next month. Strong data on export growth in India and GDP growth in Thailand also provided a boost to wider Asian markets.

Bond Yields
The 10-Year Gilt yield was broadly flat across the week, with yields at around 1.16% on Friday, representing a change of -0.9% for the week. With little in the way of updates on Brexit negotiations or the UK economy, together with relative calm in equity markets, there was little to drive a significant change to UK government bond yields this week.
10-Year German Bund yields were at 0.10% on Friday, around 9% lower than the 0.11% seen at the start of the week. Eurozone manufacturing data released this week suggested further weakness in the Eurozone economy, which meant that despite a rise in equity markets, investors were keen to allocate further capital into government bonds in Europe.
US 10-Year Treasury yields moved sideways this week, with yields at around 2.65% on Friday, representing a 0.4% fall from the 2.66% yields seen on Monday. Minutes from the Federal Reserve’s policymaking committee meeting from January were released this week, which indicated that the Central Bank may change direction this year, with a willingness to keep interest rates stable to avoid making a policy mistake.
GBP / USD – Current 1.3053 Previous 1.2889

GBP / EUR – Current 1.1517 Previous 1.1410

The Pound ended the week on a strong note, rising by around 1.3% against the US Dollar and 0.9% against the Euro. The Pound had fallen during the week after resignations from MPs in both the Labour and Conservative parties this week added to existing political uncertainty. Comments from the Chancellor Philip Hammond which confirmed the government is trying to avoid a no-deal Brexit helped to lift the currency later in the week.

There was little change in the gold price this week, with the spot price per ounce rising by 0.19% from $1,326.89 to $1,329.40. Global equities continued to recover this week, with the MSCI World Index having now recovered 3/5ths of the 20% drop seen between August and December in 2018. Investors were therefore allocating more capital towards equities this week with inflows to Gold slowing as a result.
The Brent crude oil price rose by around 0.9% this week to reach $67.12 per barrel. Whilst concerns around slowing global growth, which would cause falling oil prices, remain, the shorter-term impact of production cuts from oil producing nations is outweighing these concerns and as a result oil prices are continuing to steadily climb.