Market Commentary 6th July 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 6^th July 2020

Equity Indices

UK equities saw mixed performance last week. The FTSE 100 was broadly flat at -0.03%, with the FTSE 250 index posting a gain of 1.10%. The FTSE 100 had a strong start to the week, aided by gains in the energy sector and talk of infrastructure investment from Prime Minister Boris Johnson.

These gains were quickly reversed on Tuesday after Royal Dutch Shell, a heavyweight stock in the FTSE 100 index, announced it would be writing off up to $22 billion from the value of its assets following adjustments to their oil price forecasts. UK stocks rallied again on Thursday after better than expected Purchasing Managers Index (PMI) data, before falling again on Friday as sentiment waned.

Associated British Foods (ABF) PLC rallied by 6.77% across the week after re-opening its Primark stores. The group stated that recent sales were both ‘reassuring and encouraging’.

Europe

Equity markets in Europe saw reasonable gains last week. The broad FTSE All World Index – Europe ex UK gained 2.24% and Germany’s DAX index rose by 3.63%.

Improving economic data helped European equities to rise last week. Retail sales data from Germany beat estimates and the official unemployment rate rose by less than expected to 6.4%. PMI data for the Eurozone as a whole also showed a better than expected improvement in sentiment during June. The composite PMI for both the manufacturing and services sectors rose to 48.5, up from a reading of 31.9 in May.

European stocks struggled on Friday, with headlines regarding a rise in US coronavirus cases weighing on sentiment.

During a shorter week for US stock markets due to the 4^th July holiday celebrations, the S&P 500 index gained 4.02% and the Dow Jones Industrial Average climbed by 3.24%. Sentiment was boosted at the start of the week by data on US property sales and consumer confidence, both of which were significantly ahead of expectations.

Jobs data released on Thursday helped to maintain stock market gains as the trading week drew to a close. Official payroll data indicated the US economy added back 4.8 million jobs during June, with the unemployment rate falling from 13.3% to 11.1% as a result.

Investors in the US appeared unphased by the sharp rise in coronavirus cases, with an announcement on Wednesday from Apple to confirm they were re-closing more stores going largely unnoticed. Cases of coronavirus are now reportedly rising in 40 out of 50 states in the US.

Shares in Pfizer Inc rose by 7.74% last week, with investors encouraged by results for a vaccine currently being trialled by the pharmaceutical giant.

Asia

Asian markets saw mixed performance last week. The broad FTSE All World Index – Asia Pacific posted a gain of 1.67%. Japan’s Nikkei 225 index lost 0.91% across the week and China’s Shanghai Composite index rallied by 6.46%.

Sentiment in Japan appeared to be dented by weak economic data. A survey released by the Bank of Japan showed that confidence had rapidly declined during recent months, particularly in the manufacturing industry. This coincided with poor retail sales data, which showed a decline of 12.3% during May.

Strong economic indicators in China lead to a rally for the Chinese stock market. A PMI survey for the manufacturing sector indicated that activity was at a 6 month high during June. The People’s Bank of China also implemented further cuts to some key lending rates in an effort to help small and medium size businesses. Reports suggested that the central bank will continue to look at targeted monetary stimulus of this kind over the coming months.

Bond Yields

UK government bond yields rose slightly across the week, with the 10-Year Gilt yield climbing by 2 basis points to 0.19%. With investor sentiment in the UK generally positive last week, demand for government debt reduced.

Europe

The 10-Year German Bund yield climbed from -0.48% to -0.43%, with investors happy to rotate out of German government debt and into riskier assets. This was evident in the price of Italian government bonds increasing, with the 10-Year Italian government bond yield declining from 1.37% to 1.33% as a result.

The 10-Year Treasury yield rose to 0.68% from 0.64%, with investors ditching US government debt in favour of equities.

Currency

GBP / USD – Current 1.2483 Previous 1.2336

GBP / EUR – Current 1.1102 Previous 1.0996

The Pound weakened during the early part of the week as currency traders reacted to Boris Johnson’s spending plans, however, as the week progressed the Pound gained against both the US Dollar and the Euro. Across the week, Sterling rose by 1.19% against the greenback and 0.96% against the Euro.

Commodities

Gold

Despite it being a strong week for risk assets, demand for Gold did not appear to falter. The spot price rose by a marginal 0.04% across the week to reach $1,772.05 per ounce.

Oil

The spot price of Brent crude gained 4.34% last week, reaching $42.80 per barrel. Prices were lifted by a larger than expected decline in US inventories, together with generally positive economic data from around the globe.