Market Commentary 25th November 2019 from Charlie Hancock

The two main UK indices posted modest gains during a period where most other indices around the globe were in negative territory. Markets appeared to be directionless for most of the week, with headlines relating to the US-China trade war offering little clarity on where the dispute is heading next.

Royal Mail PLC saw a -13.88% movement in their share price for the week after announcing poor half year results. Whilst revenue increased over the period by 5%, their profit margin has declined and debt has increased significantly. The company also advised they were cutting their dividend and may post a loss for the 2020-21 financial year.

Investors were digesting comments from the US and China to try and determine how close they are to agreeing the ‘Phase One’ trade deal. President Trump claimed that a deal was close, which provided investors with some optimism. As the week progressed, news reports on the issue suggested it is unlikely that an agreement will be imminent. Consequently, most major European equity indices were in negative territory across the week.

Purchasing Managers Index (PMI) survey data released during the week also showed that the Eurozone economy remains fragile. The surveys showed that the French and German manufacturing sectors are continuing to struggle, with the service sector across the Eurozone also experiencing weakness.

Whilst the POTUS expressed that a deal is very close, he also made comments which showed support for Hong Kong. Some commentators believe this may cause complications in the dispute with China and consequently investors remained unsure of when the ‘Phase One’ trade deal will be reached.

PMI surveys in the US showed that sentiment has improved slightly from the levels seen in October, however, the manufacturing sector remains weak.

With mixed signals on the US-China trade dispute from both Washington and Beijing, markets in Asia experienced mixed performance during the week. The Shanghai Composite Index had climbed 1.5% by close of business on Tuesday following optimistic comments from Trump and President Xi, however, these gains were shed by the end of the week. Japanese stocks suffered following the release of data which showed the country’s exports declined by 9.2% in October in comparison to the previous year.

UK services PMI data showed that sentiment is at its lowest point for 40 months. Commentators believe this weakness may lead to a contraction in the UK economy for the 4^th quarter of the year. Investors therefore sought increased amounts of government debt this week, despite a rise in the major UK equity indices.

Despite some improvement in sentiment across the manufacturing industry in Europe, the sector remains weak and investors are concerned that the Eurozone could tip into recession if there is no meaningful improvement in the data soon. Consequently, government debt across Europe was in demand last week, pushing yields down.

Whilst data for the US economy released last week showed some signs of improvement from recent months, investors were in a cautious mood and Treasury stocks were therefore in increased demand.

GBP / EUR – Current 1.1644 Previous 1.1676

The Pound fell slightly last week following the release of data which suggests the UK economy continues to weaken. In addition, currency traders are attempting to bet on the outcome of the upcoming general election. The Pound declined by 0.49% against the US Dollar and 0.27% against the Euro.

Despite weakness in equity markets last week, Gold did not appear to be in demand. Whilst most major equity indices around the globe declined, the mood amongst investors appeared to be neutral rather than particularly optimistic or pessimistic.

Oil prices did fall to around $61 per barrel during the week after trade war tensions sparked fears of slowing demand, however, prices recovered by the end of the week.