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    Month: October 2020

    Market Update 26/10/20

    Following three consecutive weekly advances, equities declined modestly last week. The news flow was dominated by headlines around the negotiations for another round of fiscal relief from Washington before the election, which is fast approaching. Whilst the imposition of new lockdown restrictions rattled equity markets at the start of the week, in the US and Europe losses were curtailed by better earnings data and economic news.

    Economic survey data out of Europe also boosted sentiment later in the week. In Germany, the composite purchasing managersindex rose to 54.5, above expectations of 53.2, driven by optimism from manufacturing. A reading above 50 indicates expansion in economic activity. In addition, despite further local lockdowns, UK retail sales rose 1.5% in September from the previous month, above expectations and up 4.7% on a year-on-year basis and exceeding the forecasted 3.7% rise.

    US markets finished down 0.87%, with no clear conclusion this week on negotiations between Democrats and Republicans over a $2 trillion coronavirus aid package. The main European market finished down 1.09%, whilst the UK market finished lower by 0.29%, hindered by a stronger Pound Sterling as UK large caps derive a large portion of their revenues from overseas.

    In Asia, the Japanese market finished higher by 0.47%, whilst the Hong Kong Index was the standout performer this week rising by 2.2%. Robust GDP (Gross domestic product) data out of China helped the region as the country reported Q3 GDP growth at 4.9%. Industrial growth powered the countrys recovery from the coronavirus pandemic. Industrial production in China leapt 6.9% in September, its highest level this year and the same rate as of December before the virus outbreak.

    US bond prices have come under pressure this week, as polling forecasting, a democratic win for the Presidential election has increased the expectations of even further fiscal stimulus. The prospect of more fiscal stimulus would improve the US economic outlook and raises the chances of higher inflation, which would send yields higher. Bond yields, which move inversely to their bond price, rose for both the 10-year and 30-year US treasuries, by 11 and 15 basis points respectively over the week. The 10-year US Treasury is now yielding at 0.85% whilst the 30-year treasury is yielding at 1.67%, a four-month high.

    The UK Pound sterling is on course for its biggest weekly gain since March, up 1.18% to $1.306 The currency was buoyed by positive statements from both sides of the Brexit negotiating table. On Wednesday EU chief negotiator Michel Barnier commented that a trade deal between the UK and the EU bloc was within reach” if both sides were prepared to compromise. A response from the UK government indicating preparation for intensive talks” aided the currencys rally.

    Brent crude prices finished the week slightly lower, by 0.68% to trade at $42.64 per barrel, on the back of concerns over weaker demand given the news of further economic shutdowns. Elsewhere, copper prices made the headlines as the industrial metal hit $7,000 a tonne for the first time since 2018. Stronger industrial demand from China and supply interruptions in Chile, the worlds largest copper producer, helped boost the price.

    Market Update 19/10/2020

    Equity markets in Europe lost ground this week as governments increasingly tightened social restrictions in a bid to contain a surge in coronavirus cases. China, which has effectively controlled the virus outbreak, with life increasingly returning to normal, had a very solid week for domestic ‘A’ shares.  The latest data on imports into China for September exceeded expectations, rising by the fastest rate this year, as the economic recovery has led to a rise in demand for overseas goods.

    US Equity markets however finished slightly higher as investors continue to hope for a fiscal stimulus package. On the vaccine front, some trials have been paused due to health concerns, and Pfizer has filed an emergency-use plan for the end of November. Polls were also showing a clear lead for Joe Biden over President Trump.  Although corporate tax increases are a threat under Joe Biden, it is thought that this is unlikely until 2022 or 2023 at the earliest, whilst fiscal stimulus is expected to increase significantly through infrastructure expenditure.

    Boris Johnson warned the UK to prepare for a ‘no deal’ Brexit following little progress in negotiations with the EU.  Sterling has not moved materially in response to the statement, whilst markets continue to be uncertain as to whether this is posturing or a genuine threat.  From an equity perspective, UK equities have traded at a discount to international market ever since the vote to leave back in 2016, with most of the pain expected to be felt in Sterling should a no-deal come to pass.

    US equities are up 0.2%, whilst US technology stocks rallied by 1.2%.  European equities are down by 1.1%, but rallying hard after the selloff on Thursday, on the back of positive results from companies and brighter forward guidance, despite the tighter restrictions being introduced across the continent.  UK equities lost 1.5% over the week, as Prime Minister Boris Johnson introduced a three-tier coronavirus alert system, as social restrictions increasingly spread across the country in response to a surge in the virus.  The Japanese stock market fell 1.8%, as big exporting stocks reacted to the increase in coronavirus cases across Europe and the US.  The Australian market rose 1.2% over the week after the Reserve Bank of Australia hinted at an interest rate cut.  Emerging markets fell 0.2%, however, within that, Chinese domestic ‘A’ shares rose 2.0% as the economic recovery continued.

    Developed market government bond yields, which move inversely to price, fell this week on the worsening outlook for virus cases.  The 10-year yield on US Treasuries fell to 0.73%, German Bunds fell to minus 0.63% and UK Gilts 0.16%. Similarly, crude oil, copper and iron ore prices all fell over the week on the same concerns.

    Australian markets rallied this week after the Reserve Bank of Australia hinted at a potential interest rate cut to provide further monetary easing support for the economy. However, gains were diminished on the last trading day, following worsening global sentiment over new virus cases in both Europe and the US. Most sectors finished in negative territory on Friday alone, with notable laggards including mining which finished in the red as iron ore prices declined on oversupply concerns. Rio Tinto dropped by almost 1% after its September update reported lower production and sales of iron ore.

    Market Update 09/10/20

    European equities climbed last week, despite disappointing data pointing to a slowdown in the economic recovery and escalating coronavirus cases putting ever greater pressure on politicians to veer towards lockdowns. Positivity in Europe was in part explained by companies providing improving guidance as to future earnings, with the drug company Novo Nordisk, jewellery producer Pandora and Zalando, the online clothing retailer all raising their full-year forecasts. Whilst British Land, the UK property firm, reinstated their dividend.

    US Equities made further headway this week, with the S&P 500 recording the best weekly gain since early July, while long-term government yields rose to a four-month high. The driver behind the equity-market strength was the anticipation that another stimulus package will eventually be passed despite the shaky negotiations so far. The White House increased its fiscal stimulus offer to $1.8 trillion from $1.6 trillion, which partly bridges the gap but is still short of the $2.2 trillion package the House has already approved

    US equities rose 2.9% over the week, whilst US technology stocks increased by 3.1%. European equities were up by 1.8%, with UK equities rising by 2.2%. More domestically focused companies in Europe and the UK both made stronger gains, with European smaller companies having increased by 3.0% and UK mid-caps 3.6%. Japanese stocks gained 2.4%, whilst Australian stocks rose a massive 5.4%. Global emerging markets rose by 3.3%, whilst Latin America stocks were up 4.6%, helped by a rally in the oil price.

    US Treasury yields rose over the week (yields move inversely to price), as markets began to price in a Democratic victory, with the 10-year yield touching 0.79%, before settling down at 0.77%. German bund yields, however, remained anchored at minus 0.54%, not helped by the slowing economic recovery in Europe. UK gilts increased to 0.3%, before heading down towards 0.27% as the economic data releases on Friday disappointed markets.

    Crude oil rose over the week, with Brent crude rising 9.6%, now trading at $43.0 per barrel and US WTI (West Texas Intermediate) climbed 10.3%, trading at $40.9. The increase in price was triggered by the threat of a strike in Norway that could cut output from Europe’s biggest producer by up to 25%, and Hurricane Delta which led to a 95% cut in supply from the Gulf of Mexico. The copper price, considered by many as a barometer to the health of global growth, rose by 3.1%, now having reversed most of its recent losses.

    Disappointing data out of the Eurozone suggested that a ‘V’ shaped recovery has been harder to come by versus other parts of the world. French industrial production for August disappointed, having increased by 1.3% versus forecasts of 1.7%, following the release of the latest PMI (purchasing managers index) data on Monday suggesting continued contraction within the services sector. Similarly, industrial production in Germany for August came in at minus 0.2% versus forecasts of plus 1.5%. However, new factory orders beat expectations, increasing by 4.5% versus forecasts of 2.8%, potentially setting up German manufacturing for a strong fourth quarter. The UK also disappointed on Friday, with GDP growing by 2.1% for the month of August, versus projections of 4.6%.

    Whilst last week was the Australian equity market’s worst week since April, this week was the reverse, with the market posting strong gains. Australian markets were particularly supported by government measures to help boost the economy. Aftermarket hours on Tuesday, the government announced personal tax cuts worth AUD $17.8 billion and a further AUD $5.2 billion in new programmes to boost employment. The market reacted positively and consequently over the week all sectors posted positive gains. However, the most notable performers were energy stocks, which rose by approximately 9%.

    Market Update 02/10/20

    Stocks brushed off the uncertainties around the economic recovery and finished the week higher on hopes that Congress will reach a deal on another coronavirus-relief bill. Attention turned back to the virus and its effects after news that President Trump and First Lady Melania Trump have both tested positive for COVID-19 and that they will be going into quarantine. On the economic front, the U.S. economy added 661,000 jobs, marking a slowdown in the pace of job gains, but the unemployment rate came in better than expected at 7.9%. Investorsattention has also been focused on Europes attempts to manage a second wave of coronavirus infections, with efforts to contain the virus being managed at a local level so far, although the threat of national lockdowns has not been ruled out.

    US equities rose over the week by 2.5%, with technology stocks having climbed by 3.8%. European equities increased by 1.1%, whilst the UK market only managed a modest increase of 0.2%, held back by Sterling strength, as hopes were raised that a hard Brexit could still be avoided. More domestically focused UK mid cap stocks rose by 1.2% over the week. Japanese stocks lost 1.5%, not helped by a lost day of trading due to a technical problem at the Tokyo stock exchange on Thursday. Australian shares also fell by 2.9%, in contrast to Emerging Markets which rose by 2.4%.

    US Government bond yields rose a little (yields move inversely to price), with 10-year US Treasuries currently yielding 0.71%, and, similarly, UK gilt yields rose, currently yielding 0.25%, whilst German bunds fell further into negative territory, now yielding minus 0.54%. Gold rose by 2.5%, now trading at $1,900 an ounce. Crude oil fell sharply, with Brent crude losing 6.3%, trading at $40.17 a barrel, and US WTI (West Texas Intermediate) fell 7.8%, currently trading at $38.05

    In Australia, equity markets fell by 2.9%, suffering their worst weekly performance since April, after news that US President Trump and the First Lady tested positive for the virus. Prior to this, the main Australian market was only trailing lower over the week by approximately 0.3%. In fact, the index improved slightly following reports that New Zealanders will be able to travel to New South Wales and the Northern Territory in Australia without needing to quarantine in a one-way travel bubble from October 16th. This particularly benefitted travel and airline companies. However, all sectors fell on Friday, with the biggest detractors in the Energy sector which was already under pressure following a fall in the oil price overnight. The sector traded down by 4.01% on Friday alone.

    The latest purchasing managers indices (PMI), which provide forward guidance as to the operating environment companies find themselves within, continued to point towards expansion, although some of the data was weaker than forecast. The Markit US Manufacturing PMI came in at 53.2, with any number above 50 indicating expansion, although this narrowly missed forecasts. Similarly, the US Institute for Supply Management manufacturing survey came in at 55.4, below forecasts of 56.5, with new orders coming in at 60.2, also below expectations of 65.2. The Eurozone manufacturing PMI came inline with expectations with a reading of 53.7, also pointing towards expansion, and it was a similar story for the UK, coming in at 54.1.

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