Market Commentary 18th March 2019 from Edward Cameron

Posted by melaniebond

Market Commentary 18^th March 2019

Equity Indices

The FTSE 100 saw daily gains last week, ultimately ending 1.4% up at 7,228, in a strong week for equities as all the major world indices posted gains. With MPs backing an amendment which would prevent a no-deal Brexit, there is increased optimism that the UK will leave with some sort of deal. There is also an increasing likelihood that Article 50 is extended, and the UK remains in the EU beyond the 29^th March deadline. Positive rhetoric from the US/China trade talks also helped lift markets last week.

The FTSE 250 also fared well, ending the week 2% up to reach 5-month highs. GDP figures released last week showed an increase to 0.5% in January, reversing a drop of 0.4% in December 2018. Philip Hammond also revealed in his Spring Statement that borrowing would be £3billion lower than forecast and the government remains on track to meet its fiscal target early.

Standard Life’s share price rose 8.1% following news that it was ending its dual CEO structure and Prudential’s share price rose 5.8% off the back of a 30% increase in profits.

Europe

European equity markets also fared well last week with the FTSE All World Index – Europe ex UK up 3%, Germany’s DAX up 1.2% and France’s CAC up 2.6%.

European markets were buoyed by the news that the chances of a no-deal Brexit seem to be diminishing by the day. The ECB announced that it would not raise interest rates in 2019 and offered banks a new stimulus package of cheap loans. This helped push European markets up on expectations that borrowing would remain lower for longer.

German industrial output fell further than anticipated, led by a 9.2% decline in car production.

US equities saw rises this week, with the S&P 500 ending the week 1.4% up. US equity markets were muted following news that President Trump is unlikely to meet with Xi Jinping until April at the earliest. However, state run Chinese news agencies reported that substantive progress had been made and China also passed a new foreign investment law which will make it easier for overseas investors, as foreign companies will soon have equal standing with state-owned corporations.

Figures showing better than expected retail sales in January were also released, however news that US unemployment claims rose, and manufacturing output fell, are warning signs for the US economy.

Boeing’s share price fell by 5.2% across the week following a second crash involving its 737Max aircraft in 5 months. The aircraft is grounded until at least May, although Boeing announced a software fix within 10 days which helped the share price regain ground on Friday.

Asia

Asian markets benefitted from the positive news concerning US/China trade relations. Japan’s Nikkei 225 was up 1.5%, the FTSE All World Index – Asia Pacific up by 1.7% across the week and the Hang Seng was up 1.8%.

The Bank of Japan released figures showing that its economy is expanding. China’s retail sales increased by 8.2% and fixed-asset investment rose by 6.1%. With the news that China passed a new foreign investment law seen as the country opening up to foreign investors, there was positivity in Asian equity markets.

There is still some concern over the Chinese economy, with industrial output growth slowing and a weakening in export growth.

Bond Yields

The 10-Year Gilt yield rose 2.5% over the week, ending the week at 1.21% 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.

Europe

10-Year German Bund yields ended the week 1 basis point up at 0.08%. German Bund yields also rose off the back of a general upturn in global equity markets, however, concerns about the strength of the Eurozone’s economies has kept yields low.

US 10-Year Treasury yields ended the week 1.9% down at 2.59%, bucking conventional trends this week by not moving up in tandem with equity markets. With industrial output coming in below expectations, and unemployment claims rising, there is concern over the US economy and a global slowdown in general.

Currency

GBP / USD – Current 1.3290 Previous 1.3015

GBP / EUR – Current 1.1736 Previous 1.1585

Sterling had a strong week, ending 2.1% up against the dollar and 1.3% up against the Euro off the back of positive sentiment on Brexit. Sterling reached 9 months high against the dollar last week, briefly breaking through $1.33 and reached highs against the Euro not seen since May 2017. Whilst Sterling fluctuations will be seen in the run up to 29^th March, the general consensus is that until a definitive outcome is reached, there will not be any significant currency movements either way.

Commodities

Gold

The Gold spot price ended the week up 0.7% at $1,302 per ounce on Friday. US denominated gold became more attractive to foreign investors as the dollar weakened and this helped push the gold price up, even as equity markets rose.

Oil

Oil prices rose slightly this week, with Brent Crude ending Friday 0.9% up at $67.16 per barrel. Oil prices have slowly risen over the past few months as OPEC production cuts have continued to prop up prices.

News that Venezuela’s oil production has been more than halved as a result of political turmoil is unlikely to affect prices much as OPECs recent production cuts exceed Venezuela’s total output. In addition, countries such as Saudi Arabia are sitting on large surpluses and could greatly increase supply if needed.