Market Commentary 29th July 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 29th July 2019
Equity Indices
The FTSE 100 index finished the week up by 0.54%. A volatile Pound Sterling appeared to be the main driver for the mixed movements in the FTSE 100 during the week. The more domestically exposed FTSE 250 index, which is less sensitive to currency movements, posted daily gains and was up by 1.2% across the week.

The FTSE 100 benefited from a late week rally driven by Pharmaceutical giant AstraZeneca PLC and Telecoms provider Vodafone. After reporting strong revenues and raising its sales forecast for the year, AstraZeneca’s share price rallied to an all-time high and was up by 8% across the week. Vodafone unveiled plans to spin off its mobile mast infrastructure into a separate business, which was well received by markets. The company’s share price was up by nearly 13% across the week.

Housebuilders performed strongly this week after Boris Johnson was revealed as the UK’s new Prime Minister. During his leadership campaign, Johnson announced plans to reform stamp duty in order to provide stimulus to the property market. Across the week, Persimmon PLC’s share price rose by 6.1%, Barratt Developments PLC rose by 4.4% and Taylor Wimpey PLC rose by 5.1%.

Equity markets in Europe were mixed this week. The FTSE All World Index – Europe ex UK was broadly flat with a rise of 0.14%. Germany’s DAX index rose by 1.3%.

European equities had a positive start to the week, driven by upbeat earnings reports from companies in various sectors. Austrian firm AMS AG, who are a major supplier to Apple, reported a rise in revenues during the first half of 2019. This prompted the company’s share price to rise by 26% across the week.

European shares shed some of the week’s gains on Thursday after the European Central Bank (ECB) President, Mario Draghi, delivered a statement which indicated the bank would not look to introduce fresh monetary stimulus until September. Some investors were expecting a rate cut this month, but the ECB voted to keep rates on hold.

US stock markets had a strong week, with the S&P 500 index up by 1.66%. Earnings season continued, with mixed results from companies posting updates during the week. Caterpillar Inc and Boeing Co both reported disappointing results, with the world’s largest aircraft manufacturer posting its largest ever quarterly loss. Electric carmaker Tesla Inc confirmed it had missed its financial targets for the 2nd quarter of the year, with the company’s share price declining by 11.7% across the week as a result.

Upbeat reports from Google owner, Alphabet Inc, Intel Corporation, Starbucks and McDonalds helped to lift the market later in the week. Data confirming that the US economy grew at an annualised rate of 2.1% in the 2nd quarter was ahead of analyst expectations at 1.9%. Investor expectations for an interest rate cut by the Federal Reserve did not change and equity markets therefore welcomed the positive economic news.

Asian equity markets had a mixed week, with news reports on a trade dispute between South Korea and Japan taking their toll on some markets in the region. Reports suggested that Japan is set to remove South Korea from its list of most favoured trading partners with effect from 2nd August. This was not well received by investors, who are already cautious about equities in the region as a result of the ongoing trade war between the US and China.

The broad FTSE All World Index – Asia Pacific was down by 0.63% across the week. Japan’s Nikkei 225 index was up by 0.90% and China’s Shanghai Composite Index was up by 0.70%. Stock markets in Pakistan, Thailand and South Korea experienced poor performance during the week.

Bond Yields
UK government bond yields continued to move lower this week, with the 10 Year Gilt Yield sliding from 0.73% to 0.69%. Boris Johnson’s Premiership has caused investors to price in an increased probability of a no deal Brexit, with Gilt yields moving lower as a result.
German 10-year Bund yields declined to -0.38% this week. Mari Draghi’s speech indicated that interest rates could be cut even further later in the year with additional monetary stimulus likely. This caused a fall in Government bond yields across the region.
US Treasury yields rose slightly across the week, with 10-Year Treasury Stock yields rising from 2.06% to 2.07%.

Yields rose after data released on Friday indicated the US economy grew at a faster pace than expected during the 2nd quarter of the year. Despite this, investors are still expecting the Federal Reserve to cut interest rates by a minimum of 0.25% this month, which meant the rise in yields was subdued.

GBP / USD – Current 1.2381 Previous 1.2502

GBP / EUR – Current 1.1100 Previous 1.1143

Pound Sterling continued to weaken against both the US Dollar and the Euro last week. The Pound moved 1% lower against the US Dollar and 0.4% lower against the Euro. The Eurozone’s currency weakened in its own right after dovish comments from Mario Draghi, whilst the US Dollar strengthened slightly following reports on stronger than expected GDP growth.

Gold prices fell during the early part of the week before spiking on Thursday, however, the rise in prices was reversed on Friday as a result of positive news on US economic growth. The Gold spot price ended the week marginally up by 0.07% at $1,419 per ounce.
Brent crude oil prices rose by around 0.8% across the week to $63 per barrel. Estimates released during the week showed that global oil inventories have declined sharply during the past month, with ongoing tensions in the Gulf region also contributing to a rise in wholesale prices.