Market Commentary 10th June 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 10th June 2019
Equity Indices
The FTSE 100 index posted daily gains to recover from the fall experienced during the previous week. The index rose by 2.4% as investor sentiment improved.

Markets were lifted by suggestions that the European Central Bank and the US Federal Reserve may look to cut interest rates in the near future. News that the US would not impose immediate tariffs on Mexican imports also lifted investor spirits, boosting equity markets around the globe.

Hargreaves Lansdown, the UK’s largest investment platform provider, saw their share price decline by nearly 15% across the week after fund manager Neil Woodford suspended trading in his Woodford Equity Income fund. Hargreaves Lansdown had consistently promoted the fund to investors in their top 50 funds list.

Equity markets in Europe rebounded strongly from the losses incurred during the previous week. Germany’s DAX index rose by around 2.7% across the week, with the broader FTSE All World Index – Europe ex UK rising by 4%.

The head of the European Central Bank, Mario Draghi, announced on Thursday that the bank is ready to “use all the instruments that are in the toolbox” if the slowdown in the Eurozone’s manufacturing sector starts to impact on other parts of the economy. Mr Draghi hinted at further quantitative easing and interest rate cuts, but added that governments needed to match the bank’s efforts by increasing public spending.

US equity markets experienced a strong week, with the S&P 500 index rising by 4.4%. The Dow Jones Industrial Average index broke a six-week losing streak, rising by around 4.7% across the week.

Investors were positive following news reports suggesting that the US and Mexico were making progress on a trade agreement, with the expectation being that tariffs on Mexican goods would not be implemented. Weaker than expected US employment data released on Friday was received by investors as a sign that the Federal Reserve may cut interest rates next month.

Technology stocks suffered on Monday after the US Department of Justice said it was preparing to launch an anti-trust investigation into Google’s affairs. The sector recovered strongly throughout the remainder of the week with the tech dominated Nasdaq Composite index rising by around 5.6% between Monday and Friday.

Asian equity markets were more subdued than their global counterparts, however, this comes after much softer falls in the region during the previous week. The broad FTSE All World Index – Asia Pacific rose by around 1.3%. China’s Shanghai Composite index fell by around 2.4%, whilst Japan’s Nikkei 225 index rose by around 1.4%. The smaller markets of Thailand, Singapore and Korea were the strongest performing areas in the region this week.

With investors worrying about the impact of potential further tariffs on Chinese imports to the US, the governor of the People’s Bank of China attempted to reassure investors during an interview for Bloomberg TV. The governor stated that the central bank has plenty of policy tools to use if the economy suffers as a result of further difficulties in the US-China trade war.

Bond Yields
UK government bond yields continued to decline this week, with yields on 10-Year Gilts falling from 0.89% to 0.81%.

Government bonds yields around the globe declined last week as markets moved to price in the possibility of interest rate cuts by central banks in the near future. In addition, continued uncertainty around the UK’s political situation and the possibility of a no deal Brexit increasing lead to gilt yields declining.

Government bond yields in Europe declined further this week. The yield on 10-Year German Bunds reached a new all-time low of -0.26%.

Comments from the European Central Bank’s president, Mario Draghi, suggesting that rates may need to be cut further in order to boost the Eurozone’s economy, sent yields on government bonds down. The central bank have pledged to not raise rates until the middle of 2020, which means that European government bond yields are likely to remain suppressed.

Yields on 10-Year US Treasury stocks fell across the week, reaching 2.08% on Friday. Yields were broadly flat across the week until Friday’s non-farm payroll report showed that the US added 75,000 jobs in May. This was significantly lower than the expected 175,000 to 180,000 new jobs and was received by investors as a sign that the Federal Reserve will move to cut rates at their next policy meeting in July.

Markets are now pricing in an 85% chance of a rate cut by the Federal Reserve next month. Some analysts highlighted that wage growth and inflationary pressures remain subdued, which may influence the central bank’s decision next month.

GBP / USD – Current 1.2739 Previous 1.2629

GBP / EUR – Current 1.1228 Previous 1.1308

Sterling strengthened against the US dollar this week, but weakened against the Euro. There was little to drive the pound in either direction.

The natural reaction to the comments from the European Central Bank this week should’ve been a weaker Euro, however, the Eurozone’s currency surprised by strengthening against other major currencies. The US Dollar weakened as the market moved to increase the probability of the Federal Reserve cutting interest rates next month.

The gold spot price continued to rise this week, increasing by around 2.9% to $1,343 per ounce. The precious metal hit a 4 month high on Friday following the report showing that the US added significantly less than expected jobs last month.
The Brent crude oil price continued to fall during the early part of the week, however, prices rose slightly as the week progressed. News that the trade dispute between the US and Mexico may be drawing to an end helped lift wholesale prices. Across the week, the price of the commodity slid by around 1.9% to $63 per barrel.