Market Commentary 30th October 2019 from Charlie Hancock
|Market Commentary 30th October 2019|
|The FTSE 100 index rose by 2.43% last week during a period where most global equity markets were in positive territory. The UK’s main index was aided by a weakening Pound, which boosted the internationally exposed components of the index. Conversely, the weakness in Pound Sterling contributed to the more domestically exposed FTSE 250 index declining by -0.62% across the week.
After Prime Minister Boris Johnson failed to achieve parliamentary approval for his Brexit deal, he was forced to approach the European Union to seek an extension to the 31st October deadline. The resultant uncertainty and speculation that the PM may push for a general election caused weakness in domestic stocks. Housebuilders shed some of the gains seen in recent weeks, with Persimmon PLC falling by -2.09% and Barratt Developments PLC declining by -4.18%.
The banking sector as a whole held up well, however, Royal Bank of Scotland (RBS) Group PLC saw their share price decline by -5.25% after reporting a third-quarter loss.
|European equity markets were buoyed by reports of progress between the US and China on trade discussions, with the broad FTSE All World Index – Europe ex UK rising by 1.11%. Germany’s DAX index rose by 2.06%.
The results from a European Central Bank (ECB) survey released on Friday showed that Eurozone growth and inflation are expected to weaken. Despite this, markets were buoyed by broadly positive third quarter earnings results published by European companies during the week and the ECB keeping their supportive monetary policy unchanged.
Kering, the French luxury goods group which owns brands such as Gucci and Yves Saint Laurent, reported double digit sales growth during the third quarter, resulting in its share price climbing by 9.44% across the week. Mercedes owner Daimler AG provided some good news in the midst of a downturn in the automotive industry, reporting better than expected revenue and profits for the third quarter. As a result, the company’s share price rose by 9.19% across the week. Conversely, Belgium based drink company, Anheuser-Busch InBev, reported a fall in revenue and profits. The company’s share price declined by -11.80% across the week as a result.
|US equity markets were broadly positive last week, driven by robust corporate earnings results, optimism on the US-China trade dispute and expectations of a further interest rate cut by the Federal Reserve. The S&P 500 index climbed by 1.22% across the week to reach a level just below its all-time high
Reports suggested that substantial progress was being made between the US and China, with comments made on Friday by the US trade representative, Robert Lighthizer, supporting the optimistic feeling. Expectations of new tariffs and increases to those already in place reduced as a result.
Last week saw strong results from Intel Corp, one of the world’s largest microchip manufacturers, who reported increased profits for the quarter and raised their full year guidance. The company’s share price rose by 9.93% across the week. Around 2/3rds of US companies which have released third quarter results so far have beat analyst expectations.
McDonald’s reported results which were below analyst estimates, resulting in the fast-food company’s share price declining by -6.66% across the week.
|Asian markets were broadly positive last week, with the FTSE All World Index – Asia Pacific rising by 1.04%. Japan’s Nikkei 225 index gained 1.37% and China’s Shanghai Composite Index climbed by 0.57%.
Asian markets were lifted by reports of the US and China making some meaningful progress in trade discussions. Chinese equities continued to lag other markets in the region following the previous week’s news that Chinese economic growth has slowed. Japan’s stock market held up well, with the release of data showing that exports fell for the 10th consecutive month in September adding to expectations that the Bank of Japan may announce further monetary stimulus.
|UK government bond yields slipped during the week, with the 10-Year Gilt yield moving from 0.71% to 0.68%.
Yields declined as it became clear that Boris Johnson would have to seek a further extension to the 31st October Brexit deadline. With the likelihood of a general election rising as a result, the continued political uncertainty weakened the Pound and caused investors to seek the safety of UK sovereign debt, pushing yields downwards.
|The 10-Year German Bund yield rose slightly during the week to -0.36%.
The risk on mood displayed by investors last week meant that demand for German government debt reduced. In addition, comments from the outgoing ECB president, Mario Draghi, contributed to government debt yields moving higher. Mr Draghi stated that despite the current risks to growth, the Eurozone’s economy will expand during the 2nd half of 2019.
|US government bond yields also rose during the week as the positive investor sentiment on display meant reduced demand for Treasury stocks. The 10-Year Treasury yield climbed to 1.79%
Whilst markets are expecting the Federal Reserve to announce a further 0.25% rate cut at the end of this month, most commentators believe they will not continue cutting rates beyond the first quarter of 2020. As a result, the risk on mood of investors last week far outweighed any downward pressure on treasury yields.
|GBP / USD – Current 1.2827 Previous 1.2984
GBP / EUR – Current 1.1579 Previous 1.1621
The Pound weakened against most major currencies last week, with the uncertainty regarding Brexit weighing on the UK’s currency. Sterling was down by -1.21% against the US Dollar and -0.36% against the Euro.
|The gold spot price rose by 0.98% across the week to reach $1,504.63 per ounce.
Investors displayed an increased appetite for risk last week as a result of strong corporate earnings results and positive reports on the US-China trade dispute, however, the fairly negative macro-economic data released during the week provided support to the price of the precious metal.
|The spot price of Brent crude oil rose 4.38% to $62.02 per barrel last week.
Wholesale oil prices were lifted by a surprise decline in US inventories and suggestions that OPEC may implement further measures to support prices in the near future.