Market Commentary 25th March 2019 from Charlie Hancock

Friday marked the worst day of 2019 so far for the FTSE 100. Poor manufacturing data from the Eurozone and the US spooked investors, with a rise in Pound Sterling hurting export driven companies listed on the index. The FTSE 250 index also suffered the worst day so far during 2019 after falling by 1.8%, with more domestically focussed stocks not escaping the negative sentiment towards equities. Stocks in the financial sector were bruised as a result of the EU agreeing to Theresa May’s request to delay Brexit. Barclays share price was down by around 7% for the week, with Lloyds share price falling by around 5%.

Data showing that manufacturing output in Germany contracted for a third month in a row was released on Friday, which added to fears of a slowdown in the Eurozone’s largest economy. Figures from a recent Purchasing Managers Index (PMI) survey for March also came in below expectations, with Germany and France both weak. This painted a bleak picture for the Eurozone as a whole, prompting a sell off in European equities.

President Trump commented that talks to reach a deal with China on trade were progressing well, however, this was not enough to alleviate concerns regarding a global economic slowdown. The only two major sectors in the S&P 500 index which were in positive territory were the typically defensive utilities and consumer staples sectors, with the other 9 major sectors all down across the week.

With sentiment on US-China trade talks improving later on in the week, most Asian equity markets rose. Chipmakers in the region had a particularly good end to the week, following a rise in US technology stocks on Thursday. The financial sector was weak after comments from the US federal reserve suggested there will likely be no rate rises this year, hurting expectations of banks being able to improve their margins.

With significant amounts of capital flowing into government debt, a further section of the US yield curve inverted on Friday. The spread between yields on the 10-year Treasury note and the 3-month Treasury bill turned negative. Essentially, this represents the expectation from investors that interest rates will be higher in the shorter term than they will in the longer term. As central banks are often forced to cut interest rates in the event of a recession, this movement in yields shows that investors are fearing a recession may be on the horizon.

GBP / EUR – Current 1.1694 Previous 1.1736

Sterling weakened by around 0.5% against the US Dollar and 0.3% against the Euro this week. The Eurozone’s currency was weaker in its own right after negative data suggested that economic growth in the region will continue to be sluggish.

Gold has historically been a benefactor of falling equity markets, as evidenced on Friday, although the strength of the US Dollar in recent years has discouraged foreign investors from allocating capital towards gold, given that most trades are priced in US Dollars.