Market Commentary 18th September 2019 from Charlie Hancock

Posted by melaniebond

Market Commentary 18^th September 2019

Equity Indices

The FTSE 100 index rose by 1.17% during a week where global equity markets were firmly in positive territory. A strengthening Pound Sterling meant that the blue chip index saw more muted gains than the more domestically exposed FTSE 250 index, which climbed 2.49% across the week.

Supermarket chain WM Morrison Supermarkets PLC saw their share price rise by 10.56% across the week after reporting a significant rise in profits. The UK’s fourth largest supermarket said they expect sales to continue to improve and announced they are expanding their deal with Amazon to provide same day delivery of groceries via the Amazon Prime Now service.

Europe

European equity markets climbed during the week as global investor sentiment remained positive and the European Central Bank (ECB) announced further stimulus measures. The broad FTSE All World Index – Europe ex UK gained 1.27% across the week, with Germany’s DAX index climbing by 2.27%.

Investors were upbeat after President Trump appeared to be taking a softer stance on the US-China trade dispute. Trump announced via twitter that he would delay implementing the tariffs due on 1^st October until 15^th October. The rise in Germany’s DAX index, which is highly sensitive to trade frictions given the export driven nature of Germany’s economy, benefitted from the positive outlook. In addition, data showing that German exports unexpectedly rose in July provided investors with reason to believe the German economy may be able to avoid entering recession this year.

US equity markets also benefitted from the increased risk appetite amongst investors last week, with the S&P 500 index rising by 0.96% across the week.

Officials in Washington delivered comments during the week which suggested that they are hopeful of resuming meaningful negotiations in October. This coincided with Beijing removing tariffs on some US agricultural products.

Investors were also encouraged by US economic indicators published during the week. The data showed retail sales in the US grew faster than expected during August, consumer confidence is still high and the labour market remains healthy. These factors suggest the domestic economy remains strong, despite some weakness in the manufacturing sector.

Asia

Asian markets were broadly positive last week, with the FTSE All World Index – Asia Pacific rising by 2.48%. China’s Shanghai Composite Index climbed by 1.05% and Japan’s Nikkei 225 posted a solid gain of 3.72%. investors reacted positively to easing US-China trade tensions and Hong Kong withdrawing the legislative bill which sparked protests and riots in the region. The Indian stock market also performed strongly during the week after the country’s Finance Minister announced measures to boost exports and aid the property sector.

Bond Yields

UK government bond yields rose significantly during the week as the risk on mood across the globe dictated a flow away from government bonds towards equities. 10-Year Gilt yields climbed from 0.51% to 0.76%.

Europe

Government bond yields in Europe also climbed this week, with the 10-Year German Bund yield rising from -0.64% to -0.45%.

The ECB announced its most significant package of monetary stimulus for several years, with the central bank lowering interest rates deeper into negative territory and announcing a return to its quantitative easing (QE) programme. Government Bond yields in the region had been moving south in recent months in expectation of this stimulus. With the expectation of this looser policy already priced in by bond traders, yields rose sharply as investors ditched government debt in favour of riskier assets.

The ECB’s President, Mario Draghi, emphasised the need for fiscal expansion by member states. Mr Draghi’s comments indicated that monetary policy alone cannot drive a recovery in the Eurozone.

US government bond yields rose sharply last week as risk appetite amongst investors improved significantly. The 10-Year Treasury Yield climbed from 1.56% to 1.90%.

A softer tone from both sides in the US-China trade dispute gave investors confidence that the US economy will remain expansionary in the near future. Expectations of further rate cuts from the Federal Reserve reduced as a result, which caused yields to rise.

Currency

GBP / USD – Current 1.2501 Previous 1.2283

GBP / EUR – Current 1.1290 Previous 1.1141

The Pound strengthened this week as currency traders speculated that the prospect of a no deal Brexit is diminishing. Sterling strengthened by 1.77% against the US Dollar and 1.34% against the Euro.

Commodities

Gold

The gold spot price fell by 1.22% across the week to $1,489.53 per ounce as investors reduced their allocation to the precious metal in favour of equities.

Oil

The spot price of Brent Crude oil fell during the week, down by 2.96% to $54.85 per barrel. The impact of rising inventories and doubts over demand as the global economy slows caused prices to soften last week. The attack on Saudi Arabia’s oil production facilities on Saturday came after markets had already closed for the week.