Market Commentary 21st September 2020 From Charlie Hancock

Posted by melaniebond
Market Commentary 21st September 2020
Equity Indices
Most equity indices around the globe followed a similar pattern last week which saw a steady rise for the first half, before declines on Thursday and Friday. The FTSE 100 index finished the week down by 0.42%, whilst a stronger Pound helped the more domestically exposed FTSE 250 index maintain ground with a slight gain of 0.08%.

In the early part of the week, investor sentiment was driven by positive economic data from China, news of acquisition bids for UK based companies Arm Group and G4S, as well as hopes for a coronavirus vaccine. In the latter part of the week, investor spirits were dampened by the US Federal Reserve keeping policy on hold with no hints of further stimulus.

Shares in online supermarket, Ocado, rose by 24.32% across the week, aided by the company stating that its switch to M&S groceries from Waitrose products had been successful. Whilst Ocado has just a 1.7% share of the UK grocery market, it is now valued at £21 billion, putting it slightly behind the UK’s largest supermarket, Tesco, which has a 26% market share and is valued at £21.5 billion.

The broad FTSE All World Index – Europe ex UK was up by 0.43%, whilst Germany’s DAX index declined by 0.66%. Sentiment was impacted by a continued rise in coronavirus cases, with the World Heath Organization’s regional director for Europe, Dr Hans Kluge, calling for further quarantine measures.  Dr Kluge said it was concerning that weekly cases are exceeding those reported during the peak in March.

It was a difficult week for European automakers, with data showing that new car registrations fell by 19% in August in comparison to the same period in 2019. Volkswagen’s share price declined by 4.39%, whilst French manufacturer Renault saw a 6.78% fall.

The S&P 500 index lost 0.64% across the week and the technology heavy Nasdaq 100 index declined by 1.36%. The Dow Jones Industrial Average was broadly flat at -0.03%.

Data for retail sales in the US during August was weaker than expected, prompting concerns around the economic recovery slowing. The main turning point for investor sentiment last week came on Wednesday following the Federal Reserve’s policy meeting. Whilst the Fed kept rates on hold and signalled that they would remain unchanged for at least three years, investors appeared to be hoping for some mention of further monetary stimulus measures.

The central bank’s chairman, Jerome Powell, suggested that there would be no expansion of the current quantitative easing (QE) programme. The reaction to the Fed’s comments was negative, with a sell off in equities occurring during Thursday and Friday.

Asian markets were mixed last week, with the broad FTSE All World Index – Asia Pacific rising by 1.65%. Japan’s Nikkei 225 index declined by 0.20% and China’s Shanghai Composite Index recovered most of the previous week’s loss, gaining 2.38% across the week. Economic data in China continued to be positive, helping to lift investor spirits globally during the early part of the week.

Retail sales during August rose by 0.5% in comparison to the previous year, helped by new car sales increasing at a rate of 12% year-on-year. The data, particularly on car sales, indicates that consumer confidence in China is healthy. Official industrial production data showed a 5.6% year-on-year increase during August, signalling that factory activity is continuing to recover strongly.

Bond Yields
UK government bond yields were broadly flat across the week, with relatively little movement taking place in fixed interest markets. The 10-Year Gilt yield rose by 1 basis point to 0.19%.

The Bank of England (BoE) voted to leave interest rates on hold at 0.1% last week, whilst stating that negative interest rates remain under review. Official inflation data released on Wednesday showed that inflation was very weak during August, with the Consumer Prices Index (CPI) rising by 0.2% on an annualised basis.

Andrew Bailey, the BoE’s governor, attributed the weakness to lower oil prices, a temporary VAT cut in the hospitality sector and subsidised restaurant prices under the government’s Eat Out to Help Out scheme.

Government bond markets in Europe were also calm, with yields in even riskier periphery debt, such as Italian government bonds, seeing little change across the week. The 10-Year German Bund yield was unchanged for the 2nd week in a row at -0.48%.
Despite equity markets selling off towards the end of the week, US government bond yields rose slightly, indicating reduced levels of demand for Treasuries.

The 10-Year Treasury yield moved from 0.67% to 0.70% across the week.

GBP / USD – Current 1.2917 Previous 1.2796

GBP / EUR – Current 1.0908 Previous 1.0806

The Pound regained some ground last week, rising by 0.95% against the US Dollar and 0.94% against the Euro.

Although the Pound weakened slightly in the wake of the BoE’s policy meeting, positive rhetoric on a UK-EU trade deal drove Sterling higher across the week. The president of the European Commission, Ursula von der Leyen, stated that she is convinced a trade deal is still possible .

The Gold spot price moved close to $1,960 per ounce during the middle of the week, before falling back to finish the week with a gain of 0.53% at $1,950.86.

Whilst often referred to as a ‘safe haven’ asset, Gold did not appear to be a beneficiary of the late week sell off in equities, with the spot price falling in tandem with equity indices.

Oil prices recovered from the decline experienced during the previous week, with Hurricane Sally causing disruption to production facilities in the Gulf of Mexico. The Brent crude spot price rose by 8.34% to reach $43.15 per barrel.