Market Commentary 1st July 2019 from Edward Cameron

Posted by melaniebond
Market Commentary 1st July 2019
Equity Indices
The FTSE 100 ended the week 0.25% up at 7,426 on Friday. UK equity markets were more muted this week with little change in the political and economic landscape. The likelihood of Boris Johnson winning the Tory leadership contest and becoming the next Prime Minister has already been priced in and with it yet to be seen whether the G20 summit can act as a catalyst to move US/China trade talks forward.

There is hope that Presidents Trump and Xi can renew talks at the G20 summit, resulting in a small rise in markets on Friday, however with Trump taking a more hard-line stance over recent weeks, optimism has remained muted.

Housebuilders led the way last week as Boris Johnson announced he would reduce stamp duty and increase the threshold at which people pay higher rate income tax. Berkeley Group Holdings rose more than 4%, with Persimmon up over 2%.

The more domestically focused FTSE 250 was up 0.7% across the week

European equity markets also saw small gains last week, with the FTSE All World Index – Europe ex UK up 0.6%, France’s CAC up 0.2% and Germany’s DAX up 0.5% across the week. European markets followed UK markets in remaining muted throughout the week, before rising on Friday coinciding with the G20 summit.

Eurozone economic sentiment reached its lowest in 3 years, and with inflation at 1.2% in June, analysts expect the European Central Bank to recommence Quantitative Easing in the short term.

It was a negative week for US equities, with all major markets down. The S&P 500 ended the week 0.3% down, the NASDAQ 0.3% down and the Dow Jones 0.4% down. Whilst US markets waited for the outcome of trade talks at the G20 summit, it was a muted week for US equities. However, whilst they were slightly down over the week, all 3 major indices were up over 6% in June, with the S&P 500 logging its best June in over 60 years. Markets are still trading at or about all-time highs.

With Presidents Xi and Trump due to meet after markets closed on Friday, it is expected that there will be more significant movements over the coming week as markets react to the progress, or lack thereof, in trade talks.

Yearly inflation fell slightly between April and May, which may give the Federal Reserve more impetus to cut interest rates in an effort to meet their goal of 2% for the year.

It was a similar theme in Asian markets last week, with little movement in equity markets as investors waited for the outcome of meetings at the G20 summit. The FTSE All World Index – Asia Pacific was up by 0.5% across the week, Hong Kong’s Hang Seng up 0.2% and Japan’s Nikkei up 0.1%.

There is hope that trade talks can resume with a more positive outlook, however President Trump has recently stated that he is prepared to introduce tariffs on a further $300billion of Chinese goods if talks do not progress.

Bond Yields
The 10-Year Gilt yield fell 2.4% across the week, ending Friday on 0.85%. With little movement in UK equity markets last week, there was correspondingly little movement in Gilt yields.

The uncertain political landscape over the past months has kept yields low. In addition, Boris Johnson has said that Brexit will happen on the 31st October, increasing the chances of a no-deal Brexit and keeping yields low, despite improvements in equities.

10-Year German Bund yields ended the week down 14% at -0.33%, again reaching new all-time lows. With weak economic data coming out of Eurozone countries, coupled with the increasing likelihood of a potential interest rate cut in the near future, German bond yields remain well below 0%.

Yields continue to trickle downwards as investors price in the increased chance of a re-start to Quantitative Easing. Bond prices have increased in recent weeks ahead of an expectation that demand will increase as the ECB will commence buying up Euro Bonds.

US 10-Year Treasury yields ended the week down 2% at 2.01%. Bond yields fell slightly in line with US equity markets, however there was little change in bond yields as investors awaited the outcome of trade talks between the USA and China at the G20 summit.

With the probability of an interest rate cut of 0.25% within the short term increasing, analysts have stated that they believe bond markets to have already priced in a cut, resulting in a fall in bond yields over the past few weeks.

GBP / USD – Current 1.2696 Previous 1.2737

GBP / EUR – Current 1.1166 Previous 1.1210

Sterling was broadly flat against both the Dollar and the Euro, with little news to drive Sterling up or down. With it appearing more and more likely that Boris Johnson will become the next PM, resulting in an increased chance of a no-deal Brexit, Sterling has had no cause to rally.

The Gold spot price ended the week 0.7% up at $1,409 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.

With expectations of an interest rate cut pointing towards weaker economic growth, the price of precious metals has risen.

Oil prices rose last week, with Brent Crude ending Friday 2.1% up at $65.20 per barrel. Tensions between Iran and US over sanctions have continued. This, coupled with continued OPEC cuts on oil supply has caused oil prices to rise over the past few months.