Market Commentary 24th August 2020 from Charlie Hancock
|Market Commentary 24th August 2020|
|The FTSE 100 index declined by 1.45% across the week, with the FTSE 250 index seeing a fall of 0.89%. Heavy declines for BP and Royal Dutch Shell PLC dragged the FTSE 100 lower, with the FTSE 250 better protected from falls in the oil sector.
Sentiment amongst investors was mixed across the week, with economic data painting a muddled picture. The composite Purchasing Managers Index (PMI) survey, covering the UK services and manufacturing sectors, rose to its highest level since 2013, with a reading of 60.3. The survey indicated that the speed of economic recovery gathered pace this month, with business activity rising sharply.
Beneath the headline reading, the PMI survey showed that job cuts gathered pace in August, with economists expecting this to worsen over the coming months as the UK’s furlough scheme comes to an end.
|European equity markets also saw declines last week, with the broad FTSE All World Index – Europe ex UK declining by 1.22%. Germany’s DAX index fell by 1.06%.
Investors were in a cautious mood last week as coronavirus cases on the continent continued to rise. New case numbers for Spain were greater 5,000 per day throughout the week and Italy recorded the highest daily number of new cases since the pandemic began.
Most major indices in the region were holding some slight gains up until Thursday, when the release of disappointing PMI data resulted in a sell off for European equities. A composite survey for the Eurozone provided a reading of 51.6, indicating that new business activity had slowed in comparison to July, when a reading of 54.9 was logged.
|Equity indices in the US performed better than their European counterparts, with the S&P 500 seeing a gain of 0.72%. The Dow Jones Industrial Average index was unchanged across the week.
Some better than expected data for the US housing sector helped US equity indices start the week on a positive note, with improving PMI data later in the week adding to the cheerful sentiment. A slowdown in new coronavirus infections also seemed encouraging.
Investor confidence did appear to be dented by the release of minutes from the Federal Reserve’s latest policy meeting, which indicated that Fed officials are downbeat on the outlook for the US economy. In addition, congress appeared to make little progress on a new fiscal stimulus bill and the number of new unemployment claims was higher than expected.
|Equity indices in Asia were mixed last week, with the broad FTSE All World Index – Asia Pacific seeing a slight decline of -0.24%. Japan’s Nikkei 225 fell by 1.58%, whilst China’s Shanghai Composite Index gained 0.61%.
Official 2nd quarter figures for the Japanese economy were released last week. The government reported that the economy suffered its largest contraction since records began, with Gross Domestic Product (GDP) falling by 7.8%. Economists in Japan are expecting a strong rebound in the third quarter.
Sentiment in China improved last week, aided by new cases of coronavirus remaining low and data showing that domestic tourism is recovering strongly. Officials from Beijing and Washington agreed to cancel a meeting to discuss the first six months of the ‘phase one’ trade deal, however, this was not viewed as a sign of rising political tensions.
|UK government bond yields moved slightly lower across the week, but was relatively stable in comparison to recent months. The 10-Year Gilt yield fell from 0.24% to 0.21%.
Official data confirming that the UK’s national debt now exceeds £2 trillion, which is more than 100% of GDP, did not appear to have much impact on Gilt yields.
|The 10-Year German bund yield moved from -0.42% to -0.51% across the week. The perceived safety of German government debt was in demand last week, with weaker than expected economic data and sharp rises in coronavirus cases throughout mainland Europe prompting nervousness amongst investors.|
|US treasury yields moved lower, despite reasonable performance in US equity indices. The release of encouraging economic data in the US also appeared to be outweighed by gloomy comments from Federal Reserve officials, prompting a rise in the demand for treasuries. The 10-Year Treasury yield declined from 0.71% to 0.64%.|
|GBP / USD – Current 1.3090 Previous 1.3086
GBP / EUR – Current 1.1098 Previous 1.1055
The Pound was broadly flat against both the US Dollar and Euro last week. The Pound did rise during the first half of the week, but gave up gains after headlines regarding Brexit negotiations began to surface.
The EU’s chief negotiator, Michael Barnier, said that he was disappointed with the progress of negotiations. UK negotiator, David Frost, echoed these comments, stating that there had been little progress.
|Gold prices declined slightly across the week to $1,940.48 per ounce. The spot price did rise above the $2,000 mark on Tuesday but failed to hold ground in the 2nd half of the week.
|Oil prices did not change significantly across the week, with the spot price of Brent crude at $44.35 on Friday. The spot price did rise in the middle of the week after the release of data showing that US inventories had declined, however, a rise in initial jobless claims in the US appeared to prompt fears of demand for oil reducing in the coming months.