Market Commentary 15th July 2019 from Edward Cameron

Posted by melaniebond
Market Commentary 15th July 2019
Equity Indices
The FTSE 100 ended the week 0.6% down at 7,506 on Friday. The more domestically focused FTSE 250 was down 0.5% across the week. Following a strong rally in the previous week as a result of positive rhetoric from the G20 summit, UK equity markets were more muted this week with little change in the political and economic landscape. Ahead of the final Tory leadership vote deadline on the 21st July, it appears investors have already priced in the likelihood of Boris Johnson winning.

GDP growth for Q2 is expected to contract by 0.1%, however The National Institute for Economic and Social Research expect the UK to avoid recession with Q3 forecasts of growth of 0.2%. Consecutive quarters of contraction would technically indicate a recession.

Ocado’s share price fell 7% by Friday despite strong retail revenue as it was revealed that the fire at its Andover warehouse in February cost the company £110million.

It was a good week for housebuilders, with Barratt Development up over 9%, and Taylor Wimpey, Persimmon and Berkeley Group all up over 3%. A RICS survey on Thursday showed that new buyers increased for the first time since November 2016, indicating an upturn in the property market.

European equity markets also saw losses last week, with the FTSE All World Index – Europe ex UK down 0.8%, France’s CAC down 0.4% and Germany’s DAX down 2% across the week. With continued concern over the US/China trade war, coupled with weak European economic data, there is concern over a global economic slowdown which is feeding through to equity markets.

Deutsche bank ended the week over 4% down following the start of a restructure that will see over 18,000 people made redundant.

It was a positive week for US equities, with all major markets up. US equities was the only major equity sector to see gains last week, with the S&P 500 0.8% up, the NASDAQ 1% up and the Dow Jones 1.5% up. US indexes are trading at record highs as investors anticipate an interest rate cut.

Chairman of The Federal Reserve, Jerome Powell stated that the bank is ready to “act as appropriate” in the face of low inflation, disappointing factory activity and the ongoing trade war with China. Expectations of an interest rate cut in the short-term have increased, pushing US equities up. Analysts also expect further rate cuts later in the year and into 2020 as GDP growth is expected to slow.

It was a negative week for Asian markets last week, with all indexes posting losses as the US/China trade war continues and amid weaker Chinese economic data. The FTSE All World Index – Asia Pacific was down by 0.9% across the week, Shanghai’s Composite Index down 2.7% and Japan’s Nikkei down 0.3%.

China’s GDP growth dropped to a 27-year low in May as demand for Chinese goods faltered in the face of US tariffs. Industrial output and retail sales increased, primarily as a result of a surge in car sales. However, some analysts predict that this was a result of dealers cutting prices in a bid to get rid of surplus inventory and as such the true figures are being masked.

Bond Yields
The 10-Year Gilt yield rose by 13.5% across the week, ending Friday on 0.84%.

In recent weeks bond yields have bucked convention by falling as equity markets have risen. Typically, bond yields rise in tandem with equities as investors allocate capital towards equities and away from bonds, which causes bond prices to fall and yields to rise. However, amidst political and economic uncertainty both bond and equity prices have risen recently. With no apparent external catalyst this week, it appears that bond yields have reverted somewhat to the mean.

10-Year German Bund yields ended the week 15 basis points up at -0.21%, reflecting movements in UK bond yields.
US 10-Year Treasury yields ended the week down 4.4% up at 2.12%. Bond yields rose in line with US equity markets. Stronger than expected inflation data also dampened appetite for a $16billion auction of US Treasuries causing prices to fall and yields to rise.
GBP / USD – Current 1.2572 Previous 1.2522

GBP / EUR – Current 1.1156 Previous 1.1140

Sterling was broadly flat against both the Dollar and the Euro, with little news to drive Sterling up or down. With an expectation that interest rates will remain low, and could even be cut, coupled with low economic growth and Brexit uncertainty, investors have shunned Sterling in favour of other safe haven assets such as Gold. As a result, Sterling has remained at near 2-year lows.

The Gold spot price ended the week 1% up at $1,416 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 3.9% up at $66.72 per barrel. Production in the Gulf of Mexico was dampened by Hurricane Barry and tensions between the UK and Iran rose. The UK seized an Iranian oil tanker amidst fears that it was heading for Syria. In response, Iran tried to impede a British oil tanker and had to be warned off by a Royal Navy ship.