Market Commentary 19th November 2019 from Daniel Perkin

Posted by melaniebond
Market Commentary 19th November 2019
Equity Indices
UK equities showed mixed performance during the week, with the FTSE 100 index ending the period down by -0.77% at 7,303 points. The FTSE 250 index ended the week up by 0.23% at 20,404 points. The disparity in performance was in part due to a strengthening of Sterling during the week, which generally impacts the FTSE 100 index more given that many of the constituent stocks generate their earnings from outside the UK.

BT Group’s share price found support by the Labour Party’s election promise to provide free broadband across the country, which would involve the part-nationalisation of the telecoms company. Its share price increased by 2.88% during the week. Elsewhere, worsening events in Hong Kong dragged Prudential and HSBC’s share prices lower given their exposure to the region, falling by -4.13% and -3.68% respectively during the week.

Data released during the week confirmed that the UK’s annual rate of inflation fell to 1.5% during October, helped in part by falling energy costs. In theory, this should increase the chances of an interest rate cut; although only 1 in 5 households expect the Bank of England to cut rates according to IHS Markit’s latest survey.

Further data released during the week confirmed that the UK economy avoided a ‘technical’ recession, deemed as two successive quarters of negative growth, with the economy increasing by 0.3% in the third quarter of the year.

The FTSE All World Index – Europe ex UK index rose by 0.42% during the week, whilst Germany’s DAX index increased by 0.10%.

Similar to the UK, it was confirmed during the week that Germany narrowly avoided a recession during the third quarter of the year, growing by 0.1%. Germany’s economy has been acutely affected by the ongoing trade war between the US and China in recent months given the economy’s trade surplus with the rest of the world.

News that the US and China were edging closer to a trade deal toward the end of the week, eventually helped to lift sentiment towards European equities. Positive updates as well from Deutsche Post and Lufthansa for example, saw their share prices rise by 4.89% and 1.55% respectively during the week.

US markets continued to strengthen this week, with the Dow Jones Industrial Average for example, increasing by 1.28%. The broader S&P 500 index rose by 0.88%, whilst the technology focussed NASDAQ, also saw similar gains.

Optimism toward the end of the week over a US-China trade deal helped to support asset prices, which had been largely subdued during the week, with investors also seemingly uninterested in the ongoing presidential impeachment hearings.

Asian equities came under pressure during the week with the FTSE All World Index – Asia Pacific for example, falling by -1.02%. In Japan, economic data showed that the economy expanded by 0.1% in the third quarter of the year, with the ongoing US-China trade war in part to blame given the Japanese economy’s export orientation. Japan’s Nikkei 225 index was up marginally during the week by 0.11%.

In China, the Shanghai Composite index dropped by -2.46%, with sentiment towards Chinese equities in part being affected by worsening events in Hong Kong.

During the week, economic data confirmed that Hong Kong slipped into its first recession for a decade during the second and third quarters of this year. The disruption and uncertainty caused by the protests has weighed on confidence and investment in the region in recent months. Hong Kong’s main index, the Hang Seng, fell by -3.51% over the week.

Bond Yields
The mixed economic environment kept fixed interest assets in demand the week. In the UK, weak inflation and economic growth data saw UK gilt prices rise, which pushed yields down. The 10-Year Gilt Yield for example decreased to 0.73%.
European sovereign debt was also in demand during the week, with the 10-Year German Bund yield for example, decreasing to -0.33%.
US government bond yields reversed last week’s gains during the week and decreased to 1.83%, as measured by the 10-Year Treasury yield.
GBP / USD – Current 1.2897 Previous 1.2774

GBP / EUR – Current 1.1676 Previous 1.1594

Sterling performed well during the week against the US Dollar and the Euro; despite weak economic data and a downgrade to the UK’s economic outlook from ‘stable’ to ‘negative’ by credit rating agency, Moody’s. Against the US Dollar, Sterling was up by 0.96%, whilst against the Euro it was up by 0.71%.

Safe haven assets were still in demand during the week, benefiting from heightened political and economic uncertainties. The spot price of gold for example, was up by 0.63% at $1,468 per ounce.
Brent crude oil closed the week higher, increasing by 1.26% to $63.30 per barrel. Progress on a trade deal between the US and China gave support to the price; although expectations that production will increase next year from non-OPEC countries helped to keep gains in check.