Market Commentary 11th February 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 11th February 2020
Equity Indices
UK equities recovered some of the losses experienced in recent weeks, with the FTSE 100 index climbing by 2.48% and the FTSE 250 rising 1.68%.

Investor sentiment improved last week, with capital flowing back into risk assets around the globe. News that the spread of the coronavirus may be slowing, with treatment developments also underway, contributed to investors becoming more hopeful about the outlook for the global economy.

The FTSE 100, which is dominated by companies heavily reliant on non GBP earnings, was boosted by a weakening Pound. Travel related companies saw their share prices recover from some of the sharp losses experienced amidst travel restrictions in and out of China. International Consolidated Airlines Group PLC’s share price rose by 7.13% across the week.

European equity markets also rose last week, with the broad FTSE All World Index – Europe ex UK gaining 2.61%. Germany’s DAX index climbed by 4.10%.

European stocks were lifted by reports of meaningful progression in the development of treatments for coronavirus, in addition to hopes that the spread of the virus may have been contained somewhat. Sentiment in Europe also improved following the release of better than expected composite Purchasing Managers Index (PMI) data for the Eurozone.

European equities gave up some of the week’s gains during Friday’s session, with the release of weaker than expected industrial production data for France and Germany denting investor confidence.

US equity indices were in positive territory last week. The S&P 500 gained 3.17% and the Dow Jones Industrial Average index climbed by 3.00%.

Investors in US equities were in a bullish mood last week, aided by positive headlines regarding the development of the coronavirus outbreak, the release of strong data for the US economy and reports that China will reduce tariffs on US goods.

The non-farm payroll report showed that the US economy added 225,000 jobs during January. The overall unemployment rate was 3.6% and the data also showed that wage growth accelerated in January. These factors suggest that the labour market is continuing to tighten and point towards consumer confidence in the US remaining high in the near future.

Asian equity markets also rebounded last week, with the broad FTSE All World Index – Asia Pacific climbing by 2.35%. China’s Shanghai Composite Index gained 4.71% and Japan’s Nikkei 225 index rose by 2.68%.

In recent weeks, investors have been concerned about the outlook for the Chinese economy given the current restrictions on travel and reduced business activity. The Chinese government attempted to quell these fears last week, with Beijing officials suggesting that businesses impacted by the disruption would be provided with financial support. In addition, the Chinese government confirmed it will reduce the tariffs currently in place for imports of US goods. This was well received by investors who viewed this as a sign that US-China trade negotiations will continue to move in the right direction.

Bond Yields
UK government bond yields rose last week as investors ditched sovereign debt in favour of riskier assets, such as equities. The 10-Year Gilt Yield rose from 0.52% to 0.57%.
Government bond yields in Europe also rose as investors sought increased exposure to risk assets and reduced their exposure to government debt. The 10-Year German Bund yield rose from -0.44% to -0.39%.

With the European Central Bank (ECB) maintaining a negative deposit rate and continuing to increase their balance sheet, it is likely that German Bund yields will remain in negative territory for the foreseeable future.

US treasury yields also climbed last week. The 10-Year Treasury yield moved from 1.51% to 1.58%.

Improved investor sentiment and labour market data which suggested the US economy remains strong resulted in demand for US treasuries falling throughout the week.

GBP / USD – Current 1.2892 Previous 1.3206

GBP / EUR – Current 1.1774 Previous 1.1903

The Pound fell against most major currencies last week, losing 2.38% against the Dollar and 1.08% against the Euro.

The currency came under pressure after Boris Johnson delivered a speech at the beginning of the week. The Prime Minster suggested he would be comfortable with a trade deal which sees the UK significantly diverge from the current relationship with the EU.

After rising strongly during recent weeks, the Gold spot price declined to $1,570 per ounce, a movement of around -1.18% across the week.

With investors seeking increased exposure to equities, Gold and other assets which are deemed to be safe havens were out of favour last week.

Wholesale oil prices continued to fall last week, with oil traders concerned about demand falling in the near term as a result of the disruption currently taking place in China. The spot price of Brent Crude oil declined by 6.34% to reach $54.47 per barrel.