Market Commentary 25th November 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 25th November 2019
Equity Indices
The FTSE 100 index rose by 0.33% last week. The FTSE 250 index rose by 0.40%.

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.

European equity markets were down across the week, with the broad FTSE All World Index – Europe ex UK declining by 0.85% across the week. Germany’s DAX index posted a 0.59% loss.

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.

US equities paused this week after consecutive weekly rises throughout October and November, with no clear direction in the market. The S&P 500 index was 0.33% lower across the week, with the Dow Jones Industrial Average Index declining by 0.46%.

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.

Most markets in Asia were down slightly last week, with the broad FTSE All World Index – Asia Pacific declining by 0.41%. China’s Shanghai Composite Index declined by 0.21% and Japan’s Nikkei 225 index was down by 0.82%.

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.

Bond Yields
UK government bond yields moved slightly lower last week, with the 10-Year Gilt yield at 0.71% on Friday.

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 4th quarter of the year. Investors therefore sought increased amounts of government debt this week, despite a rise in the major UK equity indices.

The 10-Year German Bund yield declined to -0.36% across the week.

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.

US government bond yields also declined last week, with the 10-Year Treasury yield moving from 1.83% to 1.77%.

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 / USD – Current 1.2834 Previous 1.2897

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.

The gold spot price fell by 0.43% last week to $1,462 per ounce.

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.

The spot price of Brent crude oil was broadly flat across the week at around $63 per barrel.

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.