Market Commentary 19th August 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 19th August 2019
Equity Indices
The FTSE 100 had a subdued start to the week, with last week’s sell off appearing to have eased. The index had moved sideways by close of play on Tuesday, however, investor nerves took hold again from Wednesday onwards, leaving the index down by -1.89% across the week. The FTSE 250 index fell by -1.41% across the week.

Markets had a brief period of relief on Tuesday after the Trump administration said it would delay a 10% tariff on some consumer goods imported from China. Disappointing data from China and Germany emerged on Wednesday, which fuelled concerns that the US-China trade war is having a meaningful impact on the global economy.

Insurance giant, Admiral Group PLC, saw their share price rise by 4.83% across the week after reporting a rise in profits and a higher dividend. Construction company Balfour Beatty also reported an increase in revenue and profits for the first half of 2019, resulting in their share price rising by 10.64% during the week. Conversely, analyst downgrades for Rolls-Royce, Glencore and Royal Bank of Scotland contributed to their share prices falling by -3.26%, -2.93% and -10.98% respectively.

Equity indices in Europe were in negative territory this week, with the German DAX index declining by -1.13% and the broader FTSE All World Index – Europe ex UK falling by -1.60%.

European markets were stable on Monday and Tuesday, with news that the US would delay some of the tariffs proposed for Chinese imports on 1st September lifting investor sentiment. Weak data for China and Germany saw negative investor sentiment resume on Wednesday. In particular, news that Germany’s economy shrank in the 2nd quarter of this year provided further evidence that trade disputes are weighing on global economic growth.

The banking conglomerate, Deutsche Bank, saw their share price decline by -7.51% across the week as the weak German economic data took its toll on the banking sector.

US equities experienced mixed performance this week. The S&P 500 index was volatile and by close of play on Wednesday had fallen by nearly -2.7% since the start of the week. US markets staged a recovery on Thursday and Friday, leaving the index down by -1.03% across the week.  The Dow Jones Industrial Average Index followed a similar pattern and was down by -1.53% across thee week.

The sell off experienced last week continued into Monday. The fall experienced during the week’s opening session was reversed on Tuesday, following news that the US would delay import tariffs for some Chinese goods from 1st September to 15th December.

US news outlets reported that Trump’s advisors convinced him to delay the Tariffs by detailing how it could ‘ruin Christmas’. The imports due to be subject to tariffs from 1st September are largely consumer goods and the decision to delay tariffs on products such as laptops, mobile phones and games consoles should mean the impact on the US consumer is less severe in the run up to Christmas.

Asian equity markets were broadly down during the week, with the FTSE All World Index – Asia Pacific declining by -1.12%. Japan’s Nikkei 225 index declined by -1.29%, however, it was a positive week for Chinese markets, with the Shanghai Composite Index rising by 1.77%.

This week saw some economic indicators paint a slightly negative picture for China, with a slowdown in property and infrastructure investment activity, falling retail sales and slowing industrial production. However, investors were positive on Chinese companies, choosing to focus on the news of delayed tariffs and talk of increased fiscal stimulus from the government in Beijing as reasons to be upbeat.

Bond Yields
UK government bond yields continued to decline this week, despite Sterling strengthening slightly. The yield on 10-year Gilts fell by 1 basis point to 0.47% across the week.

Ongoing uncertainty around the UK’s departure from the EU continues to supress UK government bond yields. Thursday did see some positive data for the UK economy in the form of buoyant retail sales, with a 3.3% rise during July beating economist expectations.

The Consumer Price Index (CPI) measure of inflation showed a 2.1% rise in July, with the higher cost of importing goods, due to a weaker Pound, being cited as the main driver. The news is not expected to change the Bank of England’s current view on interest rates and as a result Gilt yields did not move significantly.

German government bond yields continued to move further south this week, with 10-year Bunds yielding -0.69% at close of play on Friday.

Data released during the week showed that Germany’s economy shrank by -0.1% during the 2nd quarter of the year. The Eurozone as a whole remains sluggish, with growth of 0.2% during the 2nd quarter. Investors sought the security of government debt as a result, with yields on German Bunds falling deeper into negative territory.

US Treasury yields dropped sharply this week, with the yield on 10-year Treasury stocks declining from 1.74% to 1.55% across the week. The expectation for the Federal Reserve to cut interest rates again this year continues to grow as investors become increasingly concerned about the prospect for growth over the coming years.
GBP / USD – Current 1.2149 Previous 1.2033

GBP / EUR – Current 1.0953 Previous 1.0742

Pound Sterling strengthened against both the US Dollar and the Euro this week. The Pound was lifted by positive data on UK retail sales showing that the consumer element of the economy remains resilient. In addition, news reports suggesting that Parliament will explore all avenues to block a no-deal Brexit on October 31st helped to boost the Pound.

The gold price continued to rise as investors chose to ditch equities in favour of alternative asset classes. The price of the precious metal climbed by 1.1% to reach $1,514 per ounce.
The oil price was broadly flat across the week, with the price of Brent crude at $58.64 per barrel on Friday. Apart from a spike above $60 per barrel on Wednesday, prices were relatively stable considering the ongoing tension in the Gulf and concerns around a slowing global economy causing the demand for oil to fall.