Market Commentary 5th November 2019 from Daniel Perkin

Posted by melaniebond
Market Commentary 5th November 2019
Equity Indices
UK equities saw subdued performance last week with sentiment largely being influenced by Brexit uncertainties. The FTSE 100 closed the week marginally down by -0.30%, whilst the FTSE 250 index was up slightly by 0.27%.

During the week, the EU agreed to extend the Article 50 deadline to 31st January 2020 (as expected) following a request from the UK to allow more time to consider the withdrawal agreement. This was supportive in the sense that the likelihood of a no deal Brexit has reduced, however, the UK parliament’s subsequent decision to make use of this extra time in order to hold a general election in December has created further uncertainty for the markets and the economy.

The cloud of uncertainty looming over the UK economy in the face of Brexit was confirmed toward the end of the week with manufacturing and construction data showing downturns in output, new orders, and employment during October.

European equities fared better than their UK counterparts during the week, with the FTSE All World Index – Europe Ex UK increasing by 1.19%. Germany’s DAX index was up by 0.52%.

Stronger than expected economic data for the Eurozone economy showed that the bloc grew by 0.2% during the third quarter of the year. Whilst not a strong figure, it helped to allay fears of a wider slowdown, especially in Germany, in part caused by Brexit and the ongoing trade dispute between the US and China.

Overall, the decision to kick the Brexit can down the road for a further 3 months and progress between the US and China over resolving their current trade dispute, helped to support European equities during the week.

US investors were bullish this week, seemingly putting the woes of recent weeks behind them, with the S&P 500 index for example, increasing by 1.46% and reaching an all-time high during the week.

Data released during the week showed the US economy grew by 1.6% during the third quarter of the year, whilst also adding 128,000 jobs during October; both releases beating expectations. Equities found further support during the week in the light of the US Federal Reserve’s decision to cut the main interest rate by 0.25%, which increased the appeal of holding equities.

Talks between US and Chinese officials took a more optimistic tone during the week, which helped sentiment. However, the current trade dispute remains far from resolved.

Asian equities have in part benefited from stronger US economic data and the Federal Reserve’s looser monetary policy during the week, which helped to increase risk appetite.

The FTSE All World Index – Asia Pacific for example, climbed by 1.48%, with the index’s exposure to cyclicals responding well to the supportive economic environment, particularly in relation to the US-China trade dispute.

In Japan, the Nikkei 225 index increased by 0.22%, whilst China’s Shanghai Composite index increased by 0.14%.

Bond Yields
The UK 10-Year Gilt yield declined by -2.94% during the week, indicating that investors favoured the relative safety of gilts against a backdrop of ongoing Brexit uncertainty and an impending general election, the outcome of which, remains unclear.
Conversely, German government bond yields tracked an opposite course during the week, with the 10-Year German Bund yield for example, rising by 5.56%. The delay to Brexit and a brighter picture in the US helped to support risk appetite and reduce the appeal of holding Euro sovereign debt during the week.
Despite stronger than expected economic data, US government bond yields trended lower during the week in the light of the decision by the Federal Reserve to cut interest rates. The 10-Year Treasury yield for example fell by -4.47%.

GBP / USD – Current 1.2946 Previous 1.2827

GBP / EUR – Current 1.1589 Previous 1.1579

Sterling was largely unchanged against the Euro during the week as Brexit uncertainty kept the two currencies in check.

Against the US Dollar, Sterling was up by 0.93%, in part helped by the Federal Reserve’s decision to cut interest rates.

The spot price of gold edged up during the week, rising by 0.65% at $1,514.34 per ounce; despite riskier assets performing strongly.
The price of Brent crude oil was down by -0.53% at $61.69 per barrel during the week.