Market Commentary 4th March 2019 from Edward Cameron

Posted by melaniebond
Market Commentary 4th March 2019
Equity Indices
The FTSE 100 saw daily losses through Thursday, before rallying slightly on Friday to end the week 1.1% down at 7,107. A strengthening Sterling was the main factor for a fall in the index, with the FTSE100 largely comprising of companies who generate significant revenue abroad. The more domestically focused FTSE 250 fared much better, ending the week 0.8% up and reaching its highest level since early October 2018.

Also weighing on markets this week was the news that President Trump and Kim Jong Un had failed to reach an agreement after 2 days of talks in Vietnam. More positive news for markets came in the form of confirmation that the proposed US increase to tariffs on Chinese goods has been suspended.

Ocado was the big winner of the week, rising 18% off the back of news that it had entered into a £1.8billion joint venture with Marks & Spencer. Housebuilders also fared well this week, benefitting from the Government’s Help To Buy scheme, with Taylor Wimpey leading the pack almost 9% up and declaring dividend pay-outs of £600million.

Marks & Spencer ended the week almost 5% down, with many feeling that Ocado are getting the better end of the deal. M&S have announced that they are cutting their dividend by 40% in order to fund the joint venture.

European equity markets fared well last week with the FTSE All World Index – Europe ex UK up 0.9%, Germany’s DAX up 0.8% and France’s CAC up 0.6%.

European markets were buoyed by the news that the US were suspending proposed tariff increases on £153billion of Chinese goods, as well as Goldman Sachs cutting the chances of a no-deal Brexit from 15% to 10%. European companies reaped the benefit of a more promising outlook during the current political uncertainty.

US equities saw modest rises this week, with the S&P 500 ending the week 0.3% up. US equity markets were down through Thursday after the USA and North Korea were unable to reach a nuclear agreement, however a late rally on Friday helped push the index into positive territory.

President Trump tweeted that “substantial progress” had been made and that he is planning a further summit with President Xi to conclude an agreement. With Friday passing without any increase to tariffs, investor optimism increased and markets rallied.

US GDP growth beat analysts’ expectations in Q4 of 2018, however growth was still lower than in Q3 and with unemployment coming in slightly higher than expected, gains were dampened.

Asian markets benefitted on Friday from the suspension of tariff increases, however it was a mixed bag over the week with continued concerns over China’s economy. Japan’s Nikkei 225 was up 0.3%, however the FTSE All World Index – Asia Pacific was down by 1.1% across the week and the Hang Seng was down 0.5%.

China’s manufacturing sector contracted for the third straight month, and reduced import demand caused a knock-on effect for their trading partners, with both Japan and South Korea seeing a slow-down in exports.

Bond Yields
The 10-Year Gilt yield rose 10% over the week, ending the week at 4-week highs of 1.30% on Friday. With investor optimism rising as a result of improved US/China relations, and many viewing the chances of a no-deal Brexit to be decreasing by the day, bond yields have risen as more money is allocated back to equities and away from bonds.
10-Year German Bund yields ended the week up 64% at 0.18%. German Bund yields also rose off the back of receding political risks and a general upturn in global equity markets. With yields in the low double digits, a small change in either direction represents a large percentage change, as seen by a 7 basis point increase represented by a 64% comparative increase.
US 10-Year Treasury yields ended the week 3.4% up at 2.75%. With equity markets rising as a result of the tariff suspension, US investors were happier to move away from bonds and back into equities. This was coupled with stronger than expected GDP growth and the Federal Reserve’s continued cautious tone with regards to future interest rate rises.
GBP / USD – Current 1.3202 Previous 1.3053

GBP / EUR – Current 1.1618 Previous 1.1517

Sterling had a strong week, ending 0.8% up against both the dollar and the Euro, reaching 21-month highs against the Euro. Goldman Sachs cut the chances of a no-deal Brexit from 15% to 10% and increased its chances of an extension to Article 50 to 55%.

With Labour making a U-turn over a potential second referendum and Theresa May under increasing pressure to take a no-deal scenario off the table, Sterling has benefitted from increasing optimism that a deal will be reached.

The Gold spot price ended the week down 2.6% at $1,293 per ounce on Friday. With global equity markets generally seeing positive returns last week, investors were happy to move away from traditional safe-haven assets, such as gold, and allocate more capital towards equities.
Oil prices rose slightly this week, with Brent Crude ending Friday 0.5% up at $65.07 per barrel. OPEC production cuts have continued to prop up prices, however falling global demand and increased US supply is helping to temper larger rises in oil prices.

President Trump tweeted that he thinks oil prices are rising too far and has urged OPEC to relax their cuts.