Market Commentary 7th January 2020 from Daniel Perkin
|Market Commentary 7th January 2020|
|UK equities were fairly subdued last week, with the London Stock Exchange closed for 1 ½ days over the New Year period. During the week, the FTSE 100 index declined by 0.29% to 7,644, whilst the FTSE 250 index lost 0.32%, closing at 21,988.
Stimulus measures in China and positive sentiment surrounding the US-China trade deal, helped provide support to valuations. However, events in the Middle East following the killing of Iran’s top general by the US, weighed on risk sentiment toward the end of the week given the potential ramifications.
Economic data released during the week also showed that UK construction output continued to decline during December, whilst the UK’s manufacturing sector also contracted at its fastest pace in almost 7 ½ years during the final month of 2019.
|Subdued performance was similarly seen across Europe, with the FTSE All World Index – Europe ex UK for example, decreasing by 0.16%.
Germany’s main index, the DAX, witnessed a sharper decline over the week, falling by 0.88%. Airline stock, Lufthansa, weighed on the index over the week, with the company’s share price falling by 5.1%. This was in part due to a spike in the oil price following the news that Iran’s top general had been targeted and killed by a US drone airstrike in Iraq.
Eurozone economic data released in the week confirmed a further contraction in overall manufacturing activity during December, with Germany leading the laggards. Greece was the only member state registering strong activity, with it seeing accelerated employment growth and an expansion in output and new orders.
|US equities saw mixed performance during the week, with the S&P 500 index ending the period down by 0.16%, whilst the Dow Jones Industrial Average index fell by 0.25%. However, the NASDAQ index finished the week up by 0.27%.
Stimulus measures announced by China during the week generally helped to spur risk appetite. This, together with hopes of a successful trade agreement between the US and China, supported sentiment towards US stocks. For example, the share price of technology company, Apple, which generates a sizeable chunk of its revenue in China increased by 2.63% during the week.
However, events in the Middle East toward the end of the week weighed on risk sentiment and asset prices, with investors pondering the potential ramifications on the region’s stability and relations moving forward.
|Asian markets also experienced mixed fortunes during the week. China’s main index, the Shanghai Composite for example, was up by 2.62%, whilst Japan’s Nikkei 225 index, was down by 2.66%; albeit the Tokyo Stock Exchange was closed from 30th December until 6th January. More broadly, the FTSE World Index – Asia Pacific index was up by 0.40% during the week.
Chinese equities were supported by the People’s Bank of China’s decision to reduce the amount of cash that banks must hold in reserves. This in theory would allow such banks to lend more and it is hoped that this will stimulate the Chinese economy moving forward.
In general, 2019 was a very strong year for Asian markets; despite the uncertainties over the US-China trade war and wider slowing economic growth.
|Investors were happy to hold fixed interest assets during the week, which drove prices higher and yields lower. In the UK, weak manufacturing and construction data in part supported the 10-Year Gilt for example, with its yield falling from 0.76% to 0.74% during the week.|
|In Germany and in the light of a similarly bleak assessment of the country’s manufacturing sector, the 10-Year Bund yield decreased from -0.26% to -0.28%.|
|US government bond yields followed the same trajectory as measured by the 10-Year Treasury yield, which fell from 1.88% to 1.77%.|
|GBP / USD – Current 1.3083 Previous 1.3078
GBP / EUR – Current 1.1724 Previous 1.1706
Sterling ended the week marginally in positive territory against the US Dollar and Euro; although disappointing economic data reduced its appeal toward the end of the week.
|The spot price of gold climbed by 2.76% to $1,552 per ounce during the week. Volatility in the Middle East and looser monetary policy in China helped to increase the appeal of the precious metal, which is seen as a safe haven asset in times of uncertainty and a hedge against inflation.|
|The spot price of Brent crude oil found support during the week amidst rising tensions in the Middle East following the killing of Iran’s top general by the US. As a result, the spot price increased by 0.65% to $69 per barrel.|