Market Commentary 17th June 2019 from Edward Cameron

Posted by melaniebond
Market Commentary 17th June 2019
Equity Indices
The FTSE 100 ended the week 0.2% up at 7,346 on Friday, however it was a tale of two halves, with early week gains offset by losses from Wednesday onwards. Following increased investor optimism the previous week, with suggestions that Central Banks in Europe and the US could cut interest rates and hope that US/China relations could improve at the G20 summit at the end of the month, the FTSE 100 pushed towards 7,400 on Tuesday.

However, a fall in oil prices on Wednesday had a negative impact on a commodity heavy index. In addition, President Trump announced that he has no intention of resuming trade talks until China accepts previously agreed terms, and that there is no deadline for a deal to be reached in order to avoid 25% tariffs on a further $300billion of Chinese goods.

Shares in tobacco manufacturers fell last week with fewer people smoking cigarettes. British American Tobacco shares fell just over 4% following the release of their half yearly results. Although they remain on track to meet forecasts, market share and revenue growth within the cigarette sector was down, offset by an increase in vaping products.

European equity markets were broadly flat last week, with the FTSE All World Index – Europe ex UK down 0.5%, France’s CAC up 0.1% and Germany’s DAX up 0.4% across the week. European markets followed UK markets in rising on Monday, as investors continued to digest the European Central Bank’s announcement that they were prepared to cut interest rates and consider further Quantitative Easing to counter a slowdown in Eurozone economies.

Falling oil prices and rising US/China trade tensions negatively affected European markets throughout the second half of the week.

It was another positive week for US equities, with all major markets up. The S&P 500 ended the week 0.5% up, the NASDAQ 0.7% up and the Dow Jones 0.4% up. Monday marked a 6th straight session of gains in US markets as optimism increased on a US/China trade deal with the G20 summit upcoming. President Trump’s comments on Tuesday that he was happy to block trade talks until China made concessions stopped the winning run, with markets broadly flat throughout the rest of the week.

Muted inflation data, coupled with the Federal Reserve’s previous comments, has pointed towards a cut in interest rates in the short-term, which helped buoy US stocks and as such they did not see the same latter week fall as in the UK and Europe.

It was a similar theme in Asian markets last week, with early week gains, followed by losses towards Friday as a result of US/China trade relations and a fall in oil prices. The FTSE All World Index – Asia Pacific was up by 0.5% across the week and Japan’s Nikkei up 1.1%.

Amid a slowdown in Chinese industrial production, with output growth at its weakest since 2002, the central government has asked local governments to increase infrastructure spending.

It was a more negative outlook in Hong Kong, with the Hang Seng falling 1.7% amid large protests against a proposed Chinese extradition bill. The proposed bill would allow extradition from Hong Kong to the mainland and this has caused fears over the autonomy and legal independence of the territory, prompting concerns that it would then be unable to remain an attractive financial hub for international companies.

Bond Yields
The 10-Year Gilt yield rose 5% across the week, ending Friday on 0.85%. UK Gilt Yields mirrored equity markets last week, with early week rises in the stock market causing yields to rise as investors were happier to move back into equities.

A fall in equity markets towards Friday caused a slight drop in bond yields as investors moved capital back into Government bonds. Government bond yields around the globe remained broadly flat as markets priced in the possibility of interest rate cuts by central banks in the near future. In addition, continued political uncertainty in the face of a Tory leadership contest and the increasing likelihood of a no-deal Brexit has kept Gilt yields low.

10-Year German Bund yields ended the week flat at -0.26%. The increasing likelihood of a potential interest rate cut in the near future, coupled with a general concern over the health of Eurozone economies, has resulted in German bond yields remaining at all-time lows.
US 10-Year Treasury yields also ended the week flat at 2.08%. Yields rose on Monday and Tuesday in conjunction with equity markets, however weak economic data, coupled with the Federal Reserve’s previous comments caused yields to fall back through Friday. CPI figures released were weaker than expected and analysts believe that a lack of inflationary pressures could give the Central Bank another reason to cut interest rates.
GBP / USD – Current 1.2589 Previous 1.2739

GBP / EUR – Current 1.1232 Previous 1.1228

Sterling was broadly flat against the Euro, with little news to drive Sterling up or down. Sterling fell 1.2% against the Dollar with analysts stating that the Tory leadership contest and the increased chances of Boris Johnson becoming the next PM having a negative impact on the currency.

The Gold spot price ended the week flat at $1,342 per ounce on Friday. With global equity markets fluctuating and concerns over a global slowdown, demand for safe haven assets such as gold remain high.
Oil prices slipped last week, with Brent Crude ending Friday 2% down at $63.29 per barrel. It was a more turbulent week for oil as increased US supplies and reduced global demand caused a fall in prices early on with prices dropping below $60 per barrel.

However, a suspected attack on two tankers in the Gulf of Oman, following on from previous attacks earlier in the month led to concerns over global supply and a rally in prices.