Market Commentary 7th May 2019

Posted by melaniebond
Market Commentary 7th May 2019
Equity Indices
The FTSE 100 ended the week 0.6% down at 7,380 on Friday, as a strengthening Sterling negatively affected the export heavy index. A strong week for Sterling was the main cause for a drop in the index, as global equity markets had a mixed week.

With the Conservatives and Labour losing seats in local elections, there is mounting pressure on Theresa May to hold cross-party talks on Brexit. Sterling surged on the hope that Brexit could be resolved sooner than planned and this negatively affected the FTSE100.

Shares in medical device maker, Smith & Nephew, jumped almost 5% following an increase in Q1 revenue and lifting its full year projected earnings.

The Bank of England kept interest rates at 0.75%, although Governor Mark Carney hinted that rate hikes could be more frequent in the future.

European equity markets edged slightly down last week, with the FTSE All World Index – Europe ex UK down 0.2% and France’s CAC down 0.4%. Germany’s DAX saw a weekly rise, up 0.8% across the week as both German and Eurozone manufacturing PMI data was within expectations. There was also positive unemployment data released, with Eurozone unemployment at its lowest since 2008.

A weakened Euro aided the export heavy DAX, particularly the automobile sector.

US equities were a mixed bag last week, with the S&P 500 ending the week 0.2% up, the NASDAQ 0.2% up and the Dow Jones 0.1% down. All 3 indices were down through Thursday following little progress in trade talks with China, before strong employment figures were released. Unemployment dropped to its lowest figure since 1969 and has dropped by almost 2/3rds since the Financial Crisis.
Asian markets ended the week up as China’s economic stimulus package continues. The FTSE All World Index – Asia Pacific was up by 0.5% across the week, with the Hang Seng up by 1.6%. Japan’s Nikkei was closed last week as part of the celebrations over the appointment of a new emperor, following the first abdication by a Japanese emperor in over 200 years.

Most Asian markets were closed on Wednesday for a bank holiday. US/China trade talks continued in Beijing, albeit without any substantive progress made.

Bond Yields
The 10-Year Gilt yield rose 7% across the week, ending Friday on 1.22%. With increased optimism that poor election results might force a Brexit resolution, a strengthening Sterling and no change to interest rates, investor optimism increased and demand for government debt waned.
10-Year German Bund yields ended the week 5 basis points up at 0.03%, again breaking back into positive territory. Positive unemployment figures helped increase yields, although general concern over the state of Eurozone economies has kept German government bond yields low.
US 10-Year Treasury yields ended the week 3 basis points up at 2.53%. With little movement in US equity markets there was little to change investor appetite towards bonds. Federal Reserve Chairman, Jerome Powell, stated that he was confident the inflation target of 2% could be met as interest rates remained unchanged.
GBP / USD – Current 1.3173 Previous 1.2916

GBP / EUR – Current 1.1761 Previous 1.1588

Sterling surged last week following poor local election results for the two main political parties. Sterling increased 1.5% against the Euro and 2% against the Dollar.

The Tories lost over 1,300 seats, prompting senior MPs to put pressure on Theresa May to progress cross party talks. Jeremy Corbyn announced on Friday that parliament must break the deadlock and “get a deal done”. With increased pressure on the government to reach a deal, there is hope that a deal may be reached sooner than previously expected.

The Gold spot price ended the week broadly flat at $1,279 per ounce on Friday. With global equity markets slightly up over the week, appetite for Gold reduced.
Oil prices dropped last week, with Brent Crude ending Friday 1.8% down at $70.85 per barrel, having dipped below $70 at one point.

Increased US production and inventories helped push prices lower. President Trump has been outspoken over recent months in demanding OPEC increase production in order to push oil prices lower.