Market Commentary 3rd December 2019 from Daniel Perkin

Posted by melaniebond
Market Commentary 3rd December 2019
Equity Indices
Sentiment towards UK equities was driven largely by movements in Sterling during the week, with the strengthening Pound weighing on the FTSE 100 index, which only climbed by 0.27% in comparison to the 1.60% gain recorded by the FTSE 250 index.

Investors were taking stock of mixed polling data during the week ahead of next week’s general election. Earlier in the week, polling was suggesting a narrowing of the Conservatives lead, however, the release of a more extensive poll by YouGov, predicted a comfortable majority for the Conservatives, which helped Sterling.

In stock specific news, money printer, De La Rue, saw its share price plummet by 13.85% during the week as the company announced it was scrapping its dividend. The company also raised doubts about its ability to continue as a going concern following a loss of £9.2 million in the six months to the end of September.

Elsewhere, Ocado climbed by 17.62% over the week following the news that it had secured a deal with Japan’s largest supermarket, Aeon, to provide the automated warehouses and technology required to capture Japan’s growing online grocery market.

In Europe, the FTSE All World Index – Europe ex UK gained by 0.46% over the week, whilst Germany’s DAX index was up by 0.55%. The subdued theme was continued elsewhere with France’s CAC 40 index up by 0.20% for example; although Spain’s IBEX 35 index was up by 1.05% during the week.

Spanish telecoms provider, Telefonica, was up by 2.66% during the week following its decision to sell its interests in Latin America (excluding Brazil) due to volatility in the region and a strategic decision to focus its operations.

German automotive stock, Daimler, saw its share price slide by 1.60% over the week following the company’s decision to cut at least 10,000 jobs by the end of 2022 as it attempts to reduce costs whilst restructuring its business towards the electric car market.

US markets were closed on Friday for Thanksgiving Day, however, investors were fairly positive during the week; despite the ongoing US-China trade dispute and recent developments. The S&P 500 index for example, was up by 0.99% during the week, whilst the Dow Jones Industrial Average was up by 0.63%.

During the week, President Trump intervened in Hong Kong by signing a human rights act into law, which would require the US to review the region’s political situation each year, which could lead to sanctions. Investors expected retaliatory measures from President Xi given China’s infuriation at forever foreign interference into what it deems as domestic matters. Despite this, investors were happy to throw caution to the wind the during the week.

Asian markets saw mixed performance this week with the FTSE All World Index – Asia Pacific remaining flat, whilst Japan’s Nikkei 225 index was up by 0.78%.

President Trump’s recent intervention in Hong Kong didn’t help Chinese equities, with the Shanghai Composite index falling back by 0.46% during the week, whilst Hong Kong’s Hang Seng index fell by 0.94%. At the beginning of the week, pro-democracy candidates took the majority of seats in Hong Kong’s local elections, which was seen as a strong rejection of the status-quo.

Elsewhere, economic data released during the week confirmed India’s economy slowed further in the third quarter of the year. The economy expanded by 4.5% over the period in comparison to the same period in 2018. Policymakers are trying to stimulate the economy by cutting interest rates and taxes in order to stem the contagion caused by the country’s shadow banking sector and boost confidence in the economy.

Bond Yields
UK government bond yields were in demand during the week, with the 10-Year Gilt yield for example, falling by 1.41%.
The 10-Year German Bund yield was unchanged amidst a light week on the data front.
US government bonds were out of favour during the week, with investors favouring riskier assets. The 10-Year Treasury yield for example, climbed by 0.56%.
GBP / USD – Current 1.2925 Previous 1.2834

GBP / EUR – Current 1.1738 Previous 1.1644

Favourable polling for the Conservatives during the week saw Sterling strengthen against the Euro and hit a 6-month high. Commenting on Sterling during the week, investment bank Goldman Sachs, expected further strength next year should the Conservatives win an overall majority at the forthcoming general election, which would see a swifter Brexit and removal of uncertainty.

A similar picture was painted between Sterling and the US Dollar, with investors becoming bullish on Sterling’s short term prospects.

Sterling was up by 0.81% against the Euro and 0.71% against the US Dollar during the week.

The gold spot price struggled for direction during the week, ending up slightly by 0.14% at $1,463 per ounce.
The price of Brent crude oil declined during the week, down by 1.51% at $62.43 per barrel. OPEC is due to meet this week to discuss cutting their production quotas amidst higher supply from the US, which has weighed on the price recently.