Market Commentary 23rd July 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 23rd July 2019
Equity Indices
The FTSE 100 index was broadly flat across the week, rising by 0.03%. The index rallied during the early part of the week as the pound weakened, but reversed most of these gains as the currency regained some strength later in the week. The FTSE 250 index was up by 0.36% across the week.

Fashion company ASOS saw their share price decline by almost 17% across the week after issuing another profit warning. Oil producing companies listed on the London Stock Exchange saw elevated levels of volatility this week, as a result of increased tensions between the UK and Iran. BP’s share price declined by 5.2% across the week. In contrast, easyJet saw their share price rise by almost 11% across the week, aided by the falling oil price and an upbeat trading statement.

European equity markets were broadly negative across with the week. The FTSE All World Index – Europe ex UK fell by 0.19%. Germany’s DAX index declined by 0.51%.

A significant number of European companies published results during the week. Whilst some were strong, a number of companies reported earnings which were below expectations, which caused investor sentiment to weaken. Analysts highlighted that a significant number of companies are citing ongoing uncertainties caused by the US-China trade war as the primary reason for weaker revenue growth.

Stocks in the Banking sector struggled after disappointing results were released by Sweden’s Handelsbanken and Swedbank. Spanish banking giant Santander saw their share price fall by 4.5% across the week.

US stock markets fared worse than most of their global counterparts this week, with the S&P 500 index down by 1.23%. US stock markets pulled back after reports surfaced suggesting that officials from the Federal Reserve have signalled a 0.25% cut in interest rates this month. In recent weeks, the market has moved to price in an increased likelihood of a 0.50% cut and investor sentiment therefore turned negative after reports suggested this will not happen.

Investors were also reacting to mixed corporate results which were released during the week. The technology sector was buoyed by results from Microsoft showing that earnings were better than expected. Netflix reported an unexpected fall in US subscribers, resulting in the streaming provider’s share price falling by 15.6% across the week.

Asian equity markets were mixed this week, with the FTSE All World Index – Asia Pacific rising by 0.33%. Japan’s Nikkei 225 was down by 1.01% and China’s Shanghai Composite Index fell 0.22%.

With news outlets reporting that little progress is being made in the US-China trade talks and President Trump announcing that they “have a long way to go” via Twitter, investor sentiment in Asia was muted this week. China is reportedly waiting to find out how the US will relax Huawei restrictions before committing to any new negotiations. Data released in Japan showed that exports fell for the seventh straight month in June, with exports of chip-making components to China slowing significantly.

Bond Yields
UK government bond yields moved lower this week, with yields on 10-Year Gilts moving from 0.84% to 0.73%. With ongoing political uncertainty and reports suggesting that the likelihood of a no deal Brexit is increasing, investors sought the security of UK government debt. Boris Johnson’s comments suggesting the Irish backstop agreement could be abandoned altogether also contributed to a fall in government bond yields.
German 10-year Bund yields experienced their biggest weekly fall since May, falling from -0.21% to -0.32% across the week. Further speculation regarding monetary easing from the European Central Bank (ECB) caused government bonds yield across the region to move downwards. This speculation was fuelled by reports on Thursday which suggested that the ECB are considering a change to the central bank’s inflation target of 2%.
Yields on 10-Year US Treasury stocks also moved lower this week, from 2.12% to 2.06%. Treasury yields dropped sharply during the early part of the week after comments from a Federal Reserve official were received as a sign that rates may be cut by 0.50% later this month. After several other officials delivered speeches suggesting a cut of 0.25% is much more likely, yields recovered slightly. Data showing that the US housing market is starting to weaken also contributed to yields declining throughout the week.
GBP / USD – Current 1.2502 Previous 1.2572

GBP / EUR – Current 1.1143 Previous 1.1156

Pound Sterling weakened by 0.56% against the US Dollar and 0.12% against the Euro this week. With the announcement of the UK’s next Prime Minister drawing closer, currency investors were weighing up the potential impact of the change and the likelihood of a no-deal Brexit.

Gold prices declined slightly across the week, with the price of the precious metal falling by 0.60%. In the absence of any obvious catalysts, analysts suggested that investors were choosing to take profits after the rally in Gold prices over the last couple of months.
The price of Brent crude oil fell by around 6.5% across the week, despite rising tensions between the UK and Iran. With US oil production at record levels and Russian oil output high, concerns around a shortage which would send prices upwards remain subdued.