Market Commentary 1st April 2019 from Edward Cameron

Posted by melaniebond
Market Commentary 1st April 2019
Equity Indices
The FTSE 100 fared well last week, ending Friday 1.4% up at 7,279, in a strong week for equities as all the major world indices posted gains. A fall in Sterling as a result of MPs being unable to back any of the 8 alternative Brexit options tabled helped push the export heavy index up. Positivity surrounding a potential US/China trade deal, coupled with stabilisation in bond yields, also helped improve investor optimism globally. The FTSE 250 also fared well, ending the week 1.7% up.

Ocado’s share price rose more than 9%, to reach all-time highs, following news that it has signed an agreement with Australian supermarket Coles to develop its online business. Conversely, cruise group, Carnival, dropped 9% after it released a disappointing profit forecast.

European equity markets also fared well last week, with the FTSE All World Index – Europe ex UK up 0.3%, Germany’s DAX up 1.8% and France’s CAC up 1.7%.

European markets were buoyed by the news of progress in the US/China trade talks and were further improved as Mario Draghi, President of the ECB, reaffirmed the position that the bank would not raise interest rates in 2019. With an expectation that borrowing would remain lower for longer, investor optimism improved.

US equities saw rises this week, with the S&P 500 ending the week 1.3% up. Industrials and consumer staples led the way as US equities reversed the previous week’s losses. The NASDAQ was up 1.2%, with the Dow Jones up 1.6%.

Bond yields stabilised last week, following falls in the previous week and this helped ease investor fears over an economic slowdown. Further positive news came as diplomats met in Beijing for a further round of talks with the White House suggesting they could lift some of the tariffs currently imposed on China. Talks continue this week in Washington, with hope that the two countries can reach an agreement on the issue of “forced tech transfer”, a key sticking point in negotiations. “Forced tech transfer” is the Chinese policy of forcing foreign companies to partner with local companies, in order to gain access to the market, and then using this partnership to copy products and patents, ultimately creating their own products and undercutting the foreign company.

US GDP grew by 2.2% in the 4th Quarter of 2018, which whilst lower than estimates, still meant annual growth of 2.9%, which was higher than in 2017.

Asian markets benefitted from the positive news concerning US/China trade relations. Japan’s Nikkei 225 was up 1.1%, the FTSE All World Index – Asia Pacific up by 1.0% across the week and the Hang Seng was up 1.8%.

There is still some concern over the Chinese economy, with industrial output growth slowing and a weakening in export growth. Due to the area’s proximity to China, Asian markets are most affected by news concerning China and as such remains a volatile market.

Bond Yields
The 10-Year Gilt yield stabilised this week, ending the week 1% up at 1.00%. With investor optimism rising as a result of improved US/China relations, bond yields rose as investors were happier to allocate monies back to riskier assets such as equities.
10-Year German Bund yields ended the week 4 basis points down at -0.07%, in contrast to other government bonds which saw yield rises last week. Despite a rise in global equity markets, continued uncertainty surrounding Brexit and concern for the strength of Eurozone economies meant German government debt remained popular and yields fell further.
US 10-Year Treasury yields ended the week 0.4% up at 2.41% off the back of increased optimism surrounding US and China. With signals coming from both sides that they are looking for an agreement, investor appetite for government bonds waned and yields rose.

With the yield on 3 month and 10-year Treasury notes inverting in the previous week for the first time in 10 years, there is still ongoing concerns surrounding a global slowdown.

GBP / USD – Current 1.3035 Previous 1.3217

GBP / EUR – Current 1.1620 Previous 1.1694

Sterling fell by approximately 1.4% against the Dollar and 0.6% against the Euro. Sterling had a poor week, following the inability of Theresa May to pass any of the 8 Brexit alternatives she presented to MPs. With the original 29th March Brexit deadline passing without the UK leaving the EU, there is still great uncertainty as to how and when the UK will leave. With options ranging from leaving without a deal, negotiating a customs union, cancelling Brexit and holding a second referendum, in addition to various extensions to the Article 50 deadline depending on the option chosen, there is much confusion and uncertainty.

The Gold spot price ended the week down 2.2% at $1,292 per ounce on Friday. With equity markets rising, investors were happier to de-risk away from safe-haven assets, such as gold. In addition, some analysts were of the opinion that investors were banking profit following a strong period for gold.
Oil prices rose slightly this week, with Brent Crude ending Friday 1.7% up at $68.39 per barrel. Oil prices have been fairly stable in 2019 as a result of OPEC production cuts and lower US inventories. President Trump tweeted on Thursday that oil prices were too high and asked OPEC to increase production. But even this had little impact, with an instant fall in oil futures quickly wiped out.