Market Commentary 12th November 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 12th November 2019
Equity Indices
The FTSE 100 index rose by 0.78% across the week. The FTSE 250 index gained 0.99%.

The optimistic headlines on the US-China trade war continued into last week, resulting in a risk on mood amongst investors. With speculation that some of the existing tariffs implemented by both sides could be removed, equity markets were in positive territory around the globe.

Mining companies, who are heavily exposed to China, saw strong gains as markets digested a raft of news reports on the latest comments from officials in Beijing and Washington. Glencore PLC, the world’s largest mining company, saw their share price rise by 5.58% across the week. BHP Group PLC’s share price gained 3.19% across the week.

European equity markets were broadly positive during the week, with the broad FTSE All World Index – Europe ex UK rising by 0.36%. Germany’s DAX index, which is highly sensitive to global trade sentiment, climbed by 2.06%.

As well as benefitting from positive sentiment on the US-China trade dispute, European equities were buoyed by better than expected macro-economic data for Germany. It was a mixed picture for European companies reporting earnings results during the week. Tepid results from French bank Crédit Agricole and Germany’s Commerzbank resulted in weakness in banking stocks. Commerzbank highlighted that the European Central Bank’s monetary easing has weighted on their profitability. Ryanair saw their share price rally by 11.53% across the week after the Irish airline reported forecast beating results.

US equity markets rose last week, with the S&P 500 and Dow Jones Industrial Average both reaching record highs. The indices were up by 0.85% and 1.22% respectively across the week.

Sentiment on US equities was positive for most of the week, reflecting expectations that the US economy is likely to continue expanding throughout 2020. A widely followed consumer sentiment survey also showed that the mood is improving amongst consumers in the US.

With trade tensions also easing, investors were bullish on US equities, resulting in gains across most sectors. For most of the week, comments from trade officials in the US and China suggested that they were moving closer to an agreement. Consequently, there was widespread speculation that some of the tariffs currently in place would be removed, although comments from a senior US trade advisor on Thursday cast doubt on the likelihood of this.

Asian markets followed their global counterparts this week, with most indices in the region posting gains. The broad FTSE All World Index – Asia Pacific climbed by 1.57%. China’s Shanghai Composite Index rose by 0.20% and Japan’s Nikkei 225 index climbed by 2.37%.

Chinese equities did rally during the first half of the week, however, as news reports began to suggest that it was unlikely tariffs would be rolled back in the near future, most of the early week gains in Chinese stocks were reversed. Chinese international trade data showed that imports and exports continued to decline during October, albeit by less than expected.

Bond Yields
UK government bond yields continued to rise last week, with the 10-Year Gilt Yield climbing to 0.77%.

The Bank of England voted to keep base rates at 0.75% on Thursday, however, two committee members voted for an interest rate cut. Officials from the Bank explained that it would closely monitor the response to Brexit developments from UK companies and households, together with the prospects for global economic growth.

The 10-Year German Bund yield continued to move north last week, rising to -0.26%.

European sovereign debt yields have risen in recent weeks as investors have assessed the most recent stimulus package announced by the European Central Bank. In addition, improving risk sentiment amongst investors around the globe has provided a catalyst for yields to rise.

US government bond yields also rose last week, with the 10-Year Treasury yield reaching 1.94%.

Markets are now implying no further rate cuts from the Federal Reserve until the 2nd half of 2020. Treasury yields have risen gradually as expectations for the US economy have improved. In addition, inflation expectations for the US have risen in recent weeks, contributing to rising yields.

GBP / USD – Current 1.2774 Previous 1.2946

GBP / EUR – Current 1.1594 Previous 1.1589

The Pound weakened by -1.33% against the US Dollar whilst rising by a marginal 0.04% against the Eurozone’s currency.

The Pound was knocked by comments from the Bank of England following their committee meeting on Thursday. A weak Purchasing Managers Index (PMI) survey for the UK services sector during October also contributed towards a fall in the UK’s currency. With the Eurozone’s currency weakening against other major currencies, the Pound was broadly flat against the Euro.

The gold spot price declined last week as investors ditched the traditional safe haven asset. The Spot price fell by -3.64% to $1,459 per ounce.
The spot price of Brent crude oil rose slightly last week to $62.51 per barrel. Wholesale oil prices were supported by comments from Opec, stating that it will cut supply over the next 5 years, however, officials from the oil producing group highlighted that non-opec supply prospects were being revised upwards, restricting the rise in prices last week.