Market Commentary 19th February 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 19^th February 2020

Equity Indices

The FTSE 100 index declined by 0.77% last week, with a strengthening Pound dragging down companies which are heavily reliant on overseas earnings. The more domestically exposed FTSE 250 index climbed by 1.35%. Both indices were on course to post reasonable gains for the week, however, the FTSE 100 declined sharply on Thursday as the Pound rallied.

The FTSE 100 was also hindered by one of the largest constituent companies, AstraZeneca PLC, reporting lower than expected profits for the 4^th quarter of 2019. The pharmaceutical giant also lowered their revenue estimate for 2020, leading to their share price declining by 5.01% across the week.

The large cap index was also dragged lower by the partially state-owned Royal Bank of Scotland Group (RBS). Whilst the banking group reported higher profits during the final quarter of 2019, investors were unimpressed by plans for the future, which include rebranding to NatWest Group. Their share price declined by 4.40% across the week as a result.

Europe

European equity markets were broadly positive last week, with the FTSE All World Index – Europe ex UK rising by 0.39% and Germany’s DAX index climbing by 1.70%.

Sentiment was lifted by some robust earnings results for the last quarter of 2019, with several large companies reporting stronger than expected results. Dutch brewing company, Heineken, reported a 14% rise in full year profits for 2019, resulting in their share price climbing by 6.45% across the week. French utility company, EDF, also reported a sharp rise in profits, with their share price rising by 12.5% across the week.

US equity indices posted reasonable gains last week, with the S&P 500 climbing by 1.58% and the Dow Jones Industrial Average index rising 1.02%.

Investors shrugged off Chinese authorities changing their classification basis for cases of the coronavirus. The change resulted in a sharp jump in the number of reported cases on Thursday, however, US stocks continued to head north as investors focussed on the buoyant earnings results released by companies throughout the week. With the end of earnings season approaching, around 80% of companies which have reported so far have beat analyst estimates.

Slightly weaker than expected data for retail sales in the US was offset by reports that the US government is considering a proposal to implement tax incentives for US citizens to purchase stocks.

Asia

Asian equity markets displayed mixed performance last week. The broad FTSE All World Index – Asia Pacific rose by a marginal 0.32%, with China’s Shanghai Composite Index climbing 1.43% and Japan’s Nikkei 225 index declining by 0.59%.

Whilst the number of confirmed coronavirus cases jumped sharply during the week following a decision to reclassify how the virus is diagnosed, investors were seemingly unphased. With the expectation of Beijing implementing a sizable stimulus package increasing, investors in Chinese equities were in a relatively upbeat mood.

Bond Yields

Across the globe, government bond yields were relatively stable last week, however, UK Gilt yields rose as the change of chancellor lead to expectations of increased fiscal stimulus. The 10-Year Gilt yield climbed from 0.57% to 0.63% across the week.

Europe

Government bond yields in Europe were broadly unchanged last week. German Bund yields were slightly depressed as a result of data showing German economic growth was flat during the 4^th quarter of 2019. It was widely expected that the data would show a rise in Gross Domestic Product (GDP) of 0.1%. The 10-Year Bund yield declined from -0.38% to -0.40%.

The 10-Year Treasury yield was flat last week at 1.59%. Whilst investors were broadly positive on equities, demand for US treasury stocks was stable, with data showing that the US consumer was less active during January prompting some investors to remain cautious.

Currency

GBP / USD – Current 1.3047 Previous 1.2892

GBP / EUR – Current 1.2046 Previous 1.1774

News of Sajid Javid resigning as the Chancellor of the Exchequer and the subsequent appointment of Rishi Sunak caused the UK’s currency to strengthen. The incoming chancellor is widely expected to be more receptive of Boris Johnson’s plans to increase government spending, with markets previously anticipating that Sajid Javid would restrict plans somewhat. The Pound rose by 1.20% against the US Dollar and 2.31% against the Euro during the week.

Commodities

Gold

The Gold spot price rose by 0.87% to reach $1,584 dollars per ounce. With some investors remaining concerned about the economic impact of the coronavirus, demand for the precious metal increased.

Oil

Wholesale oil prices recovered from some of the significant decline experienced in recent weeks. The Brent Crude spot price rose by 5.23% to reach $57.32 per barrel.