Market Commentary

Posted by melaniebond

Equity Indices

Following a week of continued market volatility, the FTSE 100 finished the week narrowly down by approximately 0.3%.

Europe

In Europe, the broad European equities gauge, FTSE All World Index – Europe ex UK, finished down 0.7%. Looking closer to the export driven core of Europe, Germany’s Dax finished the week broadly flat, but this somewhat masks the volatility over the week, with European equity markets selling off in the first half of the week, before mounting a recovery in the second half. The Dax rallied back stronger in the second half of the week than the broader European equity markets to erase more of the losses that had been seen through to Wednesday, most likely due to the German economy’s greater sensitivity to trade tension developments with the US.

For the US, the performance was somewhat better with the S&P 500 finishing the week up just over 0.6%, with the US markets putting President Trump’s political noise regarding trade and political diplomacy to one side and instead focussing on the impending earnings season, with many US companies set to report positive earnings, buoyed by US tax cuts.

Asia

In Asia, the broad Asia Pacific equities gauge, FTSE All World Index – Asia Pacific, finished the week moderately lower by 0.2%. The weekly trend was in line with the overall trend for global equity markets, with a weaker start to the beginning of the week with Asian markets recovering some of the losses as the week came to a close.

Geo political tensions, mainly rhetoric and retaliation on trade & tariffs, in addition to Brexit related news continue to dominant the headlines and are impacting the short-term direction of equity markets.

Bond Yields

Over the past week we have seen 10-year Government bond yields edge upwards and correspondingly valuations falling in the UK. The focus here is seemingly on the increased probability that the Bank of England’s Monetary Policy Committee may vote to increase the Bank’s base interest rate at their August meeting.

Europe

Yields in German bunds, reflecting government borrowing costs in the core of Developed Europe rose last week, with valuations correspondingly falling.

In the US, 10-year Treasury yields pared back slightly, with valuations correspondingly rising. US 10-year rates remain below the 3% level seen earlier this year, with much of this driven by the markets perception of how quickly the Federal Reserve will continue to raise interest rates.

Currency

GBP / USD – Current 1.3235 Previous 1.3255
GBP / EUR – Current 1.1326 Previous 1.1275

Over the past week we have seen sterling weaken against the US dollar by approximately 0.15% and strengthen against the euro by just shy of 0.5%. The pound recovered some ground against the euro following the publication of the Government’s White paper regarding Brexit, but sterling had less favourable moves against the dollar follow this announcement and the subsequent resignation of Foreign Secretary Boris Johnson, which followed the resignation of Brexit Secretary David Davies at the beginning of the week. Comments from President Trump regarding the White Paper and the perceived soft Brexit approach that the government was seeking worsened the position of sterling relative to the dollar.

Portfolios

Over the past week all Growth portfolios, encompassing risk scores 2-6, have performed well and outperformed their respective benchmarks. This has been against a backdrop of mixed equity markets, with volatility ever present in the main market indices. The Super Cautious portfolio also stood up well delivering a positive performance for the week, despite its low risk nature. The Lite portfolios also performed well over the week, again outperforming their respective benchmarks, with a slight performance advantage compared to the active growth portfolios. The Ethical and Ethical Bias portfolios also performed well, again ahead of their respective benchmarks and with performance that was comparable to the Lite portfolios across the differing risk scores.