Market Commentary 25th September 2019 from Charlie Hancock

Posted by melaniebond

Market Commentary 25^th September 2019

Equity Indices

The FTSE 100 experienced mixed performance this week, falling on Monday, Tuesday and Wednesday before rallying strongly on Thursday. Friday saw the index pull back slightly to end the week down by -0.31%. The FTSE 250 followed a similar pattern and was down by 0.13% across the week.

Investors were paying close attention to the latest developments in Saudi Arabia last week, after an attack on key oil processing facilities sent the oil price soaring on Monday morning. BP saw their share price rise by 3.35% across the week as a result. Conversely, airlines struggled, with Ryanair’s share price falling by -4.14% across the week.

Europe

European equity markets were also broadly in negative territory last week. The FTSE All World Index – Europe ex UK declined by -0.47%. Germany’s DAX index was flat across the week.

European markets experienced difficult performance throughout the week in the wake of the oil price spike on Monday. Comments from the incoming European Central Bank President, Christine Lagarde, also worried investors, with Ms Lagarde stating that global growth is fragile and under threat. In addition, new surveys showed that inflation expectations for the Eurozone remain stubbornly low.

There was some optimism on display on Friday after it was announced that the US would be implementing exemptions for more than 400 Chinese goods which are currently subject to tariffs. As a result, most indices in Europe rose on Thursday and Friday, ending the week marginally down.

US equity markets were resilient throughout the week. The S&P 500 was broadly flat until late into the trading session on Friday. US equities declined sharply after news reports suggested that Chinese agricultural officials had cancelled their planned visit to US farms. This concerned investors who are trying to assess where trade talks may head next. The S&P 500 index was down by -0.51% across the week.

The decision by the Federal Reserve to cut interest rates by 0.25% on Wednesday did little to drive markets this week. Investors were already expecting a cut and comments from Fed officials did not leave investors with any clear guidance on where interest rates are heading.

Netflix Inc saw their share price decline by 8% across the week, after the CEO delivered a speech at a conference on Friday which suggested that the streaming provider will face tough competition in the future.

Asia

Asian markets experienced mixed performance this week. The broad FTSE All World Index – Asia Pacific declined by -0.32%. Data showing that Chinese manufacturing activity and business investment continues to slow appeared to worry investors, with the Shanghai Composite Index declining by -0.80% across the week. The positive data which showed that retail sales and industrial production expanded during August were not able to offset the negative sentiment present in Chinese markets last week. Japan’s Nikkei 225 index rose by 0.41% across the week.

The Indian Finance Minister announced a corporate tax cut and comments from the central bank suggested that they are open to cutting interest rates further. As a result, the Indian and Pakistani stock markets stood out against their global counterparts. The Nifty 50 index rose by 1.79% across the week.

Bond Yields

UK government bond yields declined this week. The 10-Year Gilt Yield fell from 0.76% to 0.63%.

The Bank of England’s monetary policy committee voted unanimously to keep interest rates on hold, which was widely expected and as a result there was no significant market reaction to this news. Gilt yields appeared to move lower in line with government bond yields across Europe and the US last week.

Europe

The 10-Year German Bund yield fell from -0.45% to -0.52% after data showed that the Eurozone’s inflation expectations remain weak. The comments from the incoming EBC President, Christine Lagarde, also dragged yields lower.

US government bond yields declined across the week, with the 10-Year US Treasury yield falling from 1.90% to 1.72%.

The Federal Reserve cut interest rates by 0.25% last week, which was widely expected, however, investors were left with no clear guidance on the future path of interest rates. The committee were split on the decision last week, with two members voting to keep rates unchanged. The Fed’s chairman, Jerome Powell, implied that they would stick to a data driven approach and did not give any indication on where rates may be heading from here.

Currency

GBP / USD – Current 1.2433 Previous 1.2501

GBP / EUR – Current 1.1324 Previous 1.1290

News reports suggesting that Prime Minister Boris Johnson held positive talks with officials from the European Commission helped to boost the pound last week, which rose by 0.30% against the Euro. The Pound weakened by 0.55% against the US Dollar last week after the US saw their currency strengthen against most major currencies.

Commodities

Gold

The gold spot price rose by 1.9% last week to reach $1,516.90 per ounce. Concerns about the supply of oil following the attacks on Saudi Arabian facilities caused investors to seek increased exposure to the precious metal.

Oil

The spot price of Brent Crude oil rose by 14.6% on Monday in the wake of the attacks on two oil processing facilities in Saudi Arabia. News reports throughout the week suggested that the impact of the attacks may not be as disruptive as initially feared. As a result, the Brent crude spot price pulled back to finish the week 6.75% higher.