Market Commentary 16th December 2019 from Charlie Hancock
|Market Commentary 16th December 2019|
|The FTSE 100 rose by 1.57% across the week as a result of several bearish factors which drove equity market returns around the globe. The more domestically exposed FTSE 250 index gained 2.74% across the week.
The result of Thursday’s General Election was a positive outcome for the Pound and equities listed in the UK. Domestically exposed companies surged on Friday morning as the markets reacted to the news of a Conservative majority.
Banks and housebuilders fared particularly well during Friday’s trading. Barclays PLC saw their share price rise by 6.18%, with Lloyds Banking Group PLC rising by 5.25%. In the housebuilder sector, Taylor Wimpey PLC rose by 14.68%, Persimmon PLC by 12.01% and Barratt Developments PLC by 14.01%.
|European equity markets were also in positive territory last week, with the broad FTSE All World Index – Europe ex UK rising by 1.46%. Germany’s DAX index climbed by 0.88% across the week.
European equities were lifted by positive headlines on the US-China trade dispute. Throughout the week the tone was upbeat and on Friday it was confirmed that Washington and Beijing had reached a preliminary trade agreement (the ‘Phase One’ deal). The UK’s general election result also removed some of the uncertainty surrounding Brexit, which added to the risk on mood.
|US equities benefitted from the news flow surrounding the US-China trade dispute, with the S&P 500 index rising by 0.73% during the week. The Dow Jones Industrial Average Index climbed 0.43%.
The announcement of a ‘Phase One’ trade agreement between the US and China was followed by comments suggesting that the two sides would begin further negotiations for the ‘Phase Two’ deal immediately. The US confirmed that new tariffs due to be implemented on Chinese imports worth $180 billion from 15th December would be cancelled. In addition, it is expected that the next round of negotiations will see the US will offer significant reductions to the existing tariffs being imposed on Chinse imports worth around $360 billion.
Investors were relieved by the announcement of the proposed tariffs being cancelled, given that the likely outcome would’ve been higher prices for US households. The $180 billion worth of imports which are not currently subject to tariffs are mostly consumer goods, such as smartphones and electronic devices. With the US economy highly reliant on consumers to drive growth, the cancellation of the tariffs contributed to the risk on mood.
|Asian markets posted strong gains last week, with investors interpreting the news of a preliminary agreement between Beijing and Washington as positive for Asian companies. The broad FTSE All World Index – Asia Pacific gained 1.46% during the week. China’s Shanghai Composite Index posted a 1.91% gain and Japan’s Nikkei 225 climbed by 2.86%.
With Japan significantly impacted by the downturn in global trade, signs that the US may take a softer approach regarding trade during 2020 were well received by investors in Japan. The trade sensitive Nikkei 225 index rallied on Friday as a result.
|UK government bond yields were relatively stable during the week given the political events taking place. Across the period, the 10-Year Gilt yield moved from 0.77% to 0.79%.
The expectation and subsequent result of a Conservative majority caused the Pound to strengthen throughout the week, which lifted Gilt yields.
|The 10-Year German Bund yield was unchanged throughout the week at -0.29%.
Investors in European assets were in a risk on mood for most of the week, however, with concerns around the health of the Eurozone economy still present, German Bund yields of all maturities remained at low or negative levels.
|US government bond yields were also broadly unchanged across the week, with the 10-Year Treasury yield falling slightly from 1.84% to 1.82%.
On Wednesday, the Federal Reserve confirmed its benchmark interest rate would remain unchanged and signalled that it expects to keep rates on hold throughout 2020. Comments from Fed officials suggested that the central bank is holding out for a meaningful change in the rate of inflation. The markets are not therefore expecting any rate cuts in the near future.
|GBP / USD – Current 1.3331 Previous 1.3140
GBP / EUR – Current 1.1992 Previous 1.1880
With the Conservatives maintaining a healthy lead in all major Polls in the run up to the General Election, the Pound posted steady gains throughout the first half of the week. As the result became clear on Thursday evening, currency traders sought the Pound in increased amounts. Across the week, Sterling was up by 1.45% against the US Dollar and 0.94% against the Euro.
|The gold spot price rose slightly to $1,476 per ounce on Friday. This represented a gain of around 1% across the week. Analysts expect Gold prices to remain relatively stable in the near future, given the softer tone in negotiations between the US and China and a lack of other potential shocks to the global economy.|
|The spot price of Brent crude oil was broadly unchanged from the previous week at around $64 per barrel. It is expected that oil producers will continue to hold back production in the coming months to support prices.|