Market Commentary 12th November 2019 from Charlie Hancock

The optimistic headlines on the US-China trade war continued into last week, resulting in a risk on mood amongst investors. With speculation that some of the existing tariffs implemented by both sides could be removed, equity markets were in positive territory around the globe.

Mining companies, who are heavily exposed to China, saw strong gains as markets digested a raft of news reports on the latest comments from officials in Beijing and Washington. Glencore PLC, the world’s largest mining company, saw their share price rise by 5.58% across the week. BHP Group PLC’s share price gained 3.19% across the week.

As well as benefitting from positive sentiment on the US-China trade dispute, European equities were buoyed by better than expected macro-economic data for Germany. It was a mixed picture for European companies reporting earnings results during the week. Tepid results from French bank Crédit Agricole and Germany’s Commerzbank resulted in weakness in banking stocks. Commerzbank highlighted that the European Central Bank’s monetary easing has weighted on their profitability. Ryanair saw their share price rally by 11.53% across the week after the Irish airline reported forecast beating results.

Sentiment on US equities was positive for most of the week, reflecting expectations that the US economy is likely to continue expanding throughout 2020. A widely followed consumer sentiment survey also showed that the mood is improving amongst consumers in the US.

With trade tensions also easing, investors were bullish on US equities, resulting in gains across most sectors. For most of the week, comments from trade officials in the US and China suggested that they were moving closer to an agreement. Consequently, there was widespread speculation that some of the tariffs currently in place would be removed, although comments from a senior US trade advisor on Thursday cast doubt on the likelihood of this.

Chinese equities did rally during the first half of the week, however, as news reports began to suggest that it was unlikely tariffs would be rolled back in the near future, most of the early week gains in Chinese stocks were reversed. Chinese international trade data showed that imports and exports continued to decline during October, albeit by less than expected.

The Bank of England voted to keep base rates at 0.75% on Thursday, however, two committee members voted for an interest rate cut. Officials from the Bank explained that it would closely monitor the response to Brexit developments from UK companies and households, together with the prospects for global economic growth.

European sovereign debt yields have risen in recent weeks as investors have assessed the most recent stimulus package announced by the European Central Bank. In addition, improving risk sentiment amongst investors around the globe has provided a catalyst for yields to rise.

Markets are now implying no further rate cuts from the Federal Reserve until the 2^nd half of 2020. Treasury yields have risen gradually as expectations for the US economy have improved. In addition, inflation expectations for the US have risen in recent weeks, contributing to rising yields.

GBP / EUR – Current 1.1594 Previous 1.1589

The Pound weakened by -1.33% against the US Dollar whilst rising by a marginal 0.04% against the Eurozone’s currency.

The Pound was knocked by comments from the Bank of England following their committee meeting on Thursday. A weak Purchasing Managers Index (PMI) survey for the UK services sector during October also contributed towards a fall in the UK’s currency. With the Eurozone’s currency weakening against other major currencies, the Pound was broadly flat against the Euro.