Market Commentary 13th January 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 13th January 2020
Equity Indices
The FTSE 100 declined by 0.45% last week as concerns regarding rising tensions in the Middle East knocked investor sentiment. The more domestically focused FTSE 250 moved 1.92% lower across the week.

UK equities were also impacted by the Bank of England governor Mark Carney delivering a speech on Thursday. Carney highlighted the current weakness in the UK economy and hinted that an interest rate cut may be necessary in the near future.

The airline sector benefitted from Ryanair raising its forecast for 2020 and oil prices settling down as the week progressed. Easyjet rose by 8.47% across the week, with British Airways owner International Consolidated Airlines Group (IAG) seeing their share price gain 6.17%. The FTSE 250 was dragged down by some disappointing news in the retail sector. Discount retailer B&M said that trading over the Christmas period in the UK was disappointing, resulting in the company’s share price declining by 6.94% during the week. Superdry PLC saw their share price fall by 11.5% across the week after warning that final results for 2019 would be weak.

European equity markets were mixed last week, with the broad FTSE All World Index – Europe ex UK declining by 0.04%. Germany’s DAX index performed strongly, posting a 2% gain across the week.

Data released last week was mixed. Industrial production figures in France for November 2019 beat expectations, but German manufacturing orders for the same period declined. As a result, stock market performance in the region varied. Germany’s DAX index appeared to benefit most from tensions between the US and Iran easing as the week progressed, with hopes that a US-China trade deal would be signed imminently also lifting the trade sensitive index higher.

US equities were broadly positive across the week. The S&P 500 posted a 0.94% gain.

Iran’s decision to target US troops in Iraq with missile strikes lead to fears of prolonged conflict, with US stocks experiencing weakness in the first half of the week as a result. These concerns eased as the week progressed, lifting investor sentiment. Reports that the US and China would sign the ‘phase one’ trade deal in the week commencing 13th January also provided a boost to US equities. The S&P 500 pulled back slightly on Friday after the release of data showing lower than expected job creation in the US during December.

Apple Inc. saw their share price rise by 4.34% across the week, following reports that iPhone sales in China during December were 18% higher than sales during the same month in 2018.

Asian markets were positive last week, with the broad FTSE All World Index – Asia Pacific gaining 0.68%. China’s Shanghai Composite Index posted a gain of 0.28% and Japan’s Nikkei 225 climbed by 0.82%.

Equities in the region suffered in the early part of the week as the cautious sentiment amongst investors took hold, however, most indices recovered by the end of the week after it became apparent that US-Iran tensions were not escalating any further. Asian markets have also been buoyant as the signing of a preliminary trade deal between the US and China draws closer.

Investor sentiment in the region was also lifted by the release of data showing that economic activity in India accelerated during the 4th quarter of 2019. Purchasing Managers’ Index (PMI) data showed that both the services and manufacturing sectors were in expansionary territory during December, with Industrial Production also appearing to emerge from a period of contraction.

Bond Yields
UK government bond yields moved higher during the week, with the 10-Year Gilt yield rising to 0.77%.

Gilt yields climbed throughout most of the week, however, comments from Mark Carney which highlighted some of the weaknesses in the UK economy and the potential need for an interest rate cut sent yields lower on Thursday and Friday.

The 10-Year German Bund yield rose from -0.28% to -0.20% last week.

Investors were happy to ditch Bunds in favour of equities, resulting in yields moving loser to the 0% mark.

US government bond yields also moved higher last week, with the 10-Year Treasury yield rising to 1.82%.

After sinking in the previous week as concerns regarding conflict in the Middle East took hold, Treasury yields climbed as investors turned their attention towards the expected signing of a trade deal between the US and China.

GBP / USD – Current 1.3064 Previous 1.3083

GBP / EUR – Current 1.1748 Previous 1.1724

The Pound declined by 0.15% against the US Dollar, but posted a gain of 0.20% against the Euro.

The Pound continued to give up some of the recent gains against other major currencies following comments from the Bank of England governor. Mr Carney stated that the Bank’s policymakers would take prompt action if the UK economy continues to flounder.

The gold spot price rose by 0.65% to reach $1,562 per ounce last week. Investors continued to seek exposure to the precious metal as tensions built between the US and Iran.
After reaching around $69 on Monday, the spot price of Brent crude oil settled to reach $64.98 on Friday. With the US continuing to produce more oil than it consumes and other nations limiting output to support wholesale prices, oil traders are not anticipating any significant supply issues as a result of recent developments in the Middle East.