Market Commentary 28th August 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 28th August 2019
Equity Indices
The FTSE 100 experienced mixed performance this week. The index had risen 1.2% by Wednesday, but these gains were reversed throughout Thursday and Friday to leave the index down by -0.31% across the week. With the pound strengthening against other major currencies, the internationally exposed constituents of the FTSE 100 dragged the index down. The more domestically focused FTSE 250 index was up by 2.2% across the week.

J Sainsbury PLC saw their share price rise by 7.8% across the week, having recently recovered from a 30-year low. The UK’s second biggest supermarket denied that it was looking to replace its CEO, causing the share price to rally. Newspaper reports over the weekend had suggested they were looking for candidates.

European equities were broadly positive last week, having risen throughout the first half of the week before pulling back on Thursday and Friday. The FTSE All World Index – Europe ex UK rose by 0.48% across the week, with Germany’s DAX index rising by 0.42%.

European equities were broadly negative on Tuesday after Italy’s prime minister resigned, resulting in the main opposition group, the Democratic Party, proposing a coalition with the 5-Star Movement party. On Wednesday investors began to react positively to the prospect of the new coalition government, with most European indices rising.

Thursday morning saw better than expected Purchasing Manager Index (PMI) data for the Eurozone, however, further tensions in the US-China trade dispute resulted in European equities giving up some the week’s gains throughout Thursday and Friday.

After remaining in positive territory throughout the week, US equity markets fell sharply on Friday as the US-China trade war intensified. The S&P 500 index was down by -1.44% across the week after falling by around 2.5% on Friday, with the sharp movement amplified by August’s typical small trading volumes.

The Chinese government announced they would be implementing new tariffs on $75 billion of US imports in response to the latest round of Tariffs announced by the US administration. President Trump responded to China’s announcement by tweeting that ‘American companies are hereby ordered to immediately start looking for an alternative to China’. In addition, Trump announced that all existing tariffs on Chinese imports would be hiked by 5%.

Asian equities fared well this week.  As Asian markets had already closed by the time President Trump began to comment on the US-China dispute via twitter, equities in the region escaped the volatility sparked by Trump’s announcements. The broad FTSE All World Index – Asia Pacific rose by 1.18% across the week, with China’s Shanghai Composite Index rising by 2.62% and Japan’s Nikkei 225 rising by 1.43%.

Most of the week’s gains came early in the week after the government in Beijing announced a stimulus plan. The proposal intends to help lower the real rate of borrowing in order to help Chinese companies expand. At a time when China’s headline rate of growth continues to slow, measures such as this are welcomed by investors.

Bond Yields
UK government bond yields were broadly flat across the week. 10-Year Gilt yields rose marginally from 0.47% to 0.48%.

The Pound rose across the week as currency traders analysed comments from German chancellor, Angela Merkel, regarding the Irish border issue. The rise in currency caused UK government bond yields to move slightly higher.

Government bond yields in Europe were also relatively stable this week, with the yield on 10-Year German Bunds rising slightly from -0.69% to -0.68%.

Fixed income markets in Europe are expecting further monetary easing to be announced by the European Central Bank (ECB) at its next committee meeting in September. Government bond yields in the region are likely to remain close to their current levels until details of the ECB’s plans are revealed next month.

US government bond yields also remained stable this week, with 10-Year US Treasury yields falling from 1.55% to 1.54%.

Investors were analysing minutes from the Federal Reserve’s last policy meeting, which revealed that some members wished to keep rates on hold, some supported the 0.25% cut and some wanted a greater cut of 0.50%. The Fed’s Chairman, Jerome Powell, also provided little guidance whilst delivering a speech on Friday at the Jackson Hole conference attended by central bankers and economists. This left bond traders with no clear signals on the future path of US interest rates.

GBP / USD – Current 1.2266 Previous 1.2149

GBP / EUR – Current 1.1026 Previous 1.0953

Pound Sterling continued to strengthen against other major currencies this week. The Pound rose by 0.96% against the US Dollar and by 0.67% against the Euro, lifted by Angela Merkel’s comments suggesting that a solution to the Irish border issue could be found before the 31st October Brexit deadline.

The gold price declined throughout the week before spiking to around $1,527 per ounce on Friday as tensions flared in the US-China trade dispute. The price of the precious metal was up by 0.89% across the week.
The price of Brent Crude oil rose by around 1.2% across the week to reach $59.34 per barrel. The price spiked above $61 per barrel on Wednesday after data revealed that US oil inventories had fallen by more than expected, before weakening on Thursday and Friday.