Market Commentary 9th December 2019 from Charlie Hancock

Posted by melaniebond
Market Commentary 9th December 2019
Equity Indices
The FTSE 100 fell by 1.46% last week, with a strengthening Pound holding back the index. The FTSE 250 index gained 0.58% across the week.

In the early part of the week, markets were driven by concerns regarding trade tensions, with a sell off across global equity markets taking place. Positive news on the US economy saw markets recover by the end of the week, however, the rally in Sterling meant that the FTSE 100 was still in negative territory, due to the internationally derived revenues of the constituent companies.

Mining giant Glencore PLC saw their share price fall by 9.74% across the week, after it was reported that the UK’s Serious Fraud Office are investigating the company for bribery. This follows an announcement from the company in April confirming they are under investigation by the US commodities regulator.

European equity markets followed a similar pattern. The broad FTSE All World Index – Europe ex UK was marginally up across the week with a gain of 0.26%. Germany’s DAX index was down by 0.53% after recovering from most of the 2% fall experienced on Monday.

As well as declaring tariffs for Argentinian and Brazilian imports, Monday saw the US announce details of a plan to impose tariffs on French products if France proceeds with a digital services tax. The proposed tax would mostly impact US tech firms and the US have therefore proposed tariffs in response. German equities were held back by weak industrial production data, which was interpreted as evidence that uncertainty arising from trade tensions is continuing to harm Germany’s economy.

US equities also experienced an aggressive sell off on Monday. The S&P 500 index recovered by the end of the week to post a marginal gain of 0.16%.

Investors were spooked by President Trump’s twitter announcement of tariffs on steel and aluminium imports from Argentina and Brazil. Trump accused both countries of devaluing their currencies and explained this was making it hard for US manufacturers and farmers to fairly export their goods. Markets were also impacted by Trump commenting that he likes the idea of waiting until after the 2020 election to sign a US-China trade deal.

Data released on Friday for US jobs was significantly ahead of analyst expectations, which provided a catalyst for US stocks to rally.

Asian markets were in positive territory last week, with the FTSE All World Index – Asia Pacific rising by 0.74%. China’s Shanghai Composite Index gained 1.39% and Japan’s Nikkei 225 rose by 0.26%.

Purchasing Manager Index (PMI) data for China indicated improving conditions for the domestic economy, with manufacturing PMI data moving back into expansionary levels. This suggested there was a sharp improvement in manufacturing production during November, which dampened some of the fears that the sector would worsen as the US-China trade dispute continues.

Sentiment on Asian equities strengthened towards the end of the week as reports suggested that progress was being made on negotiations between the US and China.

Bond Yields
UK government bond yields rose during the week as investors generally displayed an increased appetite for risk. The 10-Year Gilt yield climbed from 0.70% to 0.77%.

With opinion polls suggesting that Boris Johnson will gain a majority in the upcoming general election, investors were happy to ditch the perceived safe haven of UK government debt in favour of riskier assets last week.

The 10-Year German Bund yield climbed from -0.36% to -0.29%, despite European equity markets lagging their global counterparts last week.

With a broadly risk on mood amongst investors, demand for German government debt declined.

US government bond yields also rose last week, with the 10-Year Treasury yield moving from 1.78% to 1.84%.

After falling on Monday following weak US manufacturing data, Treasury yields jumped at the end of the week as a result of employment data showing that 266,000 new jobs were created during November. This was significantly ahead of the expected 180,000 mark and provided investors with reason to ditch US treasuries in favour of equities.

GBP / USD – Current 1.3140 Previous 1.2925

GBP / EUR – Current 1.1880 Previous 1.1738

The Pound strengthened against most major currencies last week as opinion polls showed that the Conservative lead was widening. Currency traders were positive on Sterling based on the increased likelihood of a Conservative majority, with the Pound rising 1.66% against the Dollar and 1.20% against the Euro during the week.

The gold spot price fell by 0.26% last week to reach $1,460 on Friday. The gold price did spike earlier in the week as investors became concerned about heightened trade tensions, however, as sentiment improved the spot price fell back below the level seen at the start of the week.
The spot price of Brent crude oil recovered from the previous week’s losses to reach around $64 per barrel on Friday. Wholesale prices rose as a result of a meeting between Opec members, where an agreement was reached to cut oil production.