Market Commentary 13th July 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 13th July 2020
Equity Indices
UK equities lost ground last week. A strengthening Pound Sterling appeared to weigh on the FTSE 100 index, which declined by 1.01%. The FTSE 250 index posted a 0.71% loss for the week.

Both indices rose strongly on Monday, after positive sentiment from Asian markets fed into UK stocks. Monday’s session also saw a boost from housebuilders, with investors reacting to rumours of a stamp duty holiday and the release of data showing that activity in the construction sector is picking up. Barratt Homes, one of the UK’s largest housebuilders, reported that their order book is strong and rival company Persimmon also reported an increase in customer reservations. Barratt’s share price rose by 10.87% across the week, with Persimmon seeing a 16.64% gain.

Sentiment faded as the week progressed, with investors seemingly nervous about rising coronavirus infections in some regions. Poor performance from heavyweight stocks also contributed to the negative sentiment for UK equities. BP declined by 5.45%, Royal Dutch Shell lost 3.69% and HSBC saw a 6.86% fall. The three companies combined account for approximately 19% of the FTSE 100 index.

European equities were in positive territory for the week, with the broad FTSE All World Index – Europe ex UK gaining 1.31%. Germany’s DAX index climbed by 0.84%. It was a similar pattern to indices in the UK, with strong gains on Monday which faded as the week progressed.

The performance in European indices reflected the mixed sentiment amongst investors around the globe. Economic data is improving, with encouraging indicators for industrial production in France and Italy being released last week, however, investors were in a cautious mood. Whilst most of Europe appears to have the spread of coronavirus relatively well contained, rising infections in the US caused some market nervousness.

US equity indices saw reasonable gains last week after re-opening from the Independence Day market holiday. The S&P 500 index rose by 1.76% and the Dow Jones Industrial Average index posted a 0.96% gain.

Drivers for investor sentiment in the US were mixed. Weekly jobless claims were lower than expected at 1.3 million, indicating that the pace of job losses is slowing, however, coronavirus infections in the US continued to rise sharply. On Friday, a record high of nearly 67,000 new cases were reported.

Gains were driven by the technology sector, with stocks such as Amazon and Netflix continuing to attract investor attention. Their share prices rose by 10.72% and 15.06% respectively across the week.

Asian equities saw mixed performance last week, with Chinese indices strongly outperforming other stock markets in the region. The Shanghai Composite index gained 7.31% across the week. Japan’s Nikkei 225 index saw a slight decline of -0.07% and the broad FTSE All World Index – Asia Pacific rose by 1.51%.

Chinese stocks rallied strongly last week after a state-owned news organisation published a story which suggested that equities will rise strongly as the country’s economic recovery continues. Trading volumes, i.e. the amount of shares being bought and sold, doubled in comparison to recent months as retail investors in China piled into the stock market.

Data published last week showed that Chinese copper production rose strongly during June, pointing to an increase in industrial activity. China accounts for 50% of the world’s copper consumption.

Bond Yields
UK government bond yields declined across the week, with investor nervousness causing demand for sovereign debt to increase. The 10-Year Gilt yield moved from 0.19% to 0.16%.
The 10-Year German Bund yield broadly reversed the rise seen during the previous week to move to -0.47%. Whilst equity markets in Europe delivered positive performance across the week, investors were clearly in a cautious mood and demand for German Bunds rose as a result.
The 10-Year Treasury yield declined from 0.68% to 0.65%. In recent months demand for corporate debt in the US has far outweighed the demand for government debt, however, the liquidity boosting measures taken by the Federal Reserve this year are likely to mean that Treasury yields remain low in the near future.
GBP / USD – Current 1.2622 Previous 1.2483

GBP / EUR – Current 1.1172 Previous 1.1102

The Pound rose against most major currencies last week, gaining 1.11% against the US Dollar and 0.63% against the Euro.

Economic stimulus measures announced by chancellor Rishi Sunak last week appeared to drive the Pound higher. Mr Sunak announced a stamp duty holiday to boost housing transactions and measures which should encourage employers to re-employ furloughed staff.

Gold prices rose last week, with a weakening US dollar and cautious sentiment having an inflationary impact on the precious metal. The spot price gained 1.50% to reach $1,798.70 per ounce.
The Brent crude spot price rose by 1.03% across the week, reaching $43.24 per barrel on Friday. Demand for oil is continuing to improve as economic activity picks up, with traders bidding up the price in response.