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    Market Updates

    Market Update 18/09/2020

    U.S. stocks closed at a six-week low, driven by weakness in technology stocks, which exert an outsized influence on major indexes because of their size. Even though more than 70% of the S&P 500 stocks were higher, the index closed lower for the third week in a row. On the flip side, cyclical, small-cap and international stocks, and oil, all rebounded, finishing positive for the week. The Federal Reserve signalled that it will keep rates near zero through at least 2023 to help the economy weather the health and economic crisis.

    Economic data showed that the economic recovery is progressing, but the pace of improvement is slowing.However, Chinese equities rose, and the renminbi had its best week since November 2019 as retail sales rose by 0.5% in August versus one year earlier, providing some evidence that perhaps the world’s second-largest economy is starting to experience a sustainable economic recovery.

    US stocks rose 0.5%, matched by US technology stocks, recovering some of their losses suffered in the preceding week. European equities increased by 1.0% despite the escalation in Covid19 cases, as investors continued to take the view that any future lockdowns would be implemented locally rather than nationally. UK equities rose 0.4%, with the country suffering a similar increase in the Covid19 infection rate, as the government implemented a lockdown of the northeast of England. Japanese equities rose 0.6%, as Yoshihide Suga was formerly announced as the new Prime Minister following the early resignation of Shinzo Abe due to ill health. Australian equities increased by 0.1%, whilst Asia Pacific excluding Japan as a whole increased by 1.1%. Within this, Chinese domestic shares were up by 2.4%, as the Chinese Renminbi strengthened versus the US dollar by 1.1%.

    The 10-year yield on US Treasuries rose a little (yields move inversely to price), now trading at 0.68% as the Fed maintained its QE purchases at $120 billion per month, split between Treasuries, $80 billion, and mortgage-backed securities, $40 billion. The Fed’s forecast for the contraction in US demand was significantly reduced this week, with the Fed now forecasting a contraction of 3.7% versus their forecast of a 6.5% loss in June. Whilst German bunds strengthened further, now yielding minus 0.50%. UK gilts also rose, now yielding 0.17%, as the Bank of England announced that it was exploring how it would implement negative interest rates should they be required. Market commentators suggested that negative interest rates may be considered by the Bank of England in the event of a hard Brexit.

    Crude oil bounced back having sold off last week, with Brent crude climbing almost 9%, now trading at $43.4 a barrel and US WTI (West Texas Intermediate) rose by almost 10%, now trading at $41.0. Copper made further steady progress, rising by over 2%, having risen by 46% since its nadir in March. Copper is considered as a good bell weather to overall global economic growth. Gold was broadly steady, rising by 0.8%, trading at $1,962 a troy ounce.

    Market Update 11/09/2020

    Stocks declined for the second straight week, as technology stocks experienced their worst pullback since March. There was no single catalyst for the move lower, which left the Nasdaq about 10% below its all-time high reached just six trading days ago. However, broad valuation concerns, skepticism about a compromise on a coronavirus stimulus package before the election, and signs of slowing progress in the labor market all contributed to the negative sentiment. However, European equity markets, which have lagged the US despite having greater control over the Covid19 outbreak, rose over the week.

    US equities fell 2.6% over the week, with the technology sector giving up a further 3.5% on top of last weeks losses. However, despite this, US technology stocks have still recorded gains over twenty percent year to date, as the economic lockdowns put in place by developed countries have led to an acceleration in structural trends already underway, such as home working and internet shopping. European equities rose 1.5%, whilst UK equities increased by 3.3%. Concerns arose that the UK government is considering overriding elements of the withdrawal agreement put in place with the European Union, despite acknowledging that this would be breaking international law. This led to a slump in the value of sterling, thereby boosting the earnings of UK companies whose profits are derived from outside of the country. Japanese equities were up 1.2%, whilst Australian stocks fell 1.1%, and Emerging markets fell 1.3% in aggregate.

    Government bond yields, which move inversely to price, fell this week as the risk off sentiment in US equities permeated into the bond market, with the 10-year Treasury touching 0.66% at its lowest point. However, an auction of $35bn worth of 10-year Treasuries went for a yield of 0.70%, slightly higher than the yield achieved at the previous auction of 0.67%. US Treasuries are now trading at a yield of 0.69%, German Bunds minus 0.46% and UK Gilts 0.22%, all down over the week.

    Crude oil suffered further weakness this week too, as oil traders bet that the demand for oil would weaken from here now that the summer driving season is ending. At close, the price of crude oil fell by 5%, having fallen by almost 15% since the end of August, making energy stocks one of the worst performing sectors over the week. Brent crude is currently trading at $40.0 a barrel and US WTI (West Texas Intermediate) $37.4.

    Despite the Eurozones fall into deflation for the month of August, the European Central Bank (ECB) left monetary policy unchanged in its latest meeting, with interest rates held at minus 0.5%. Perhaps somewhat unexpectedly, the central bank also revised up their inflation forecast for next year to 1%, from 0.8% previously. This change was partly explained by government plans to boost spending. The Euro has now appreciated by over 10% versus the US dollar since March, acting as a headwind to the ECB reaching its inflation target and making European exporters less competitive.

    Market Update – 04/09/2020

    The equity markets saw volatility return last week, with Thursday seeing declines of 3% and Friday 1%. Before this last week, the S&P 500 advanced for four straight weeks, with technology stocks leading the index to a new record high.

    The strength of the stock market, though, seemingly disconnected from current economic fundamentals, has been supported to date by aggressive fiscal and monetary stimulus and stronger-than-expected economic indicators of future growth. Investors also await US employment data after disappointing private-sector employment data released halfway through the week.

    US equities were down for the week by 1.5%, with the technology sector recording a 2% fall, following record all-time highs having been reached on Wednesday. European equities, which have much lower exposure to technology, were down by 1% and UK equities were 1.8% lower. Japanese equities were 0.7% higher whilst Australian shares were down by 2.4%. Emerging markets lost 1.1% although there was a wide dispersion of returns between countries.

    The fall in US technology stock was brushed away as a healthy correction by many, as the five largest US stocks, with a combined value of $8 trillion, had been trading on an average price to earnings ratio of 44 times, close to the 50 times P/E ratio peak for the five biggest stocks during the dotcom bubble.

    Against a backdrop of soft equity markets, disappointing private-sector employment data out of the US and news that the Eurozone had slipped into deflation for the month of August, government bond yields fell (yields move inversely to price), with 10-year US Treasuries currently yielding 0.72%, German Bunds minus 0.47% and UK Gilts 0.26%.

    Amongst commodities, gold fell by 1.4% over the week, now trading at $1,928 an ounce, and copper slipped by 0.23%. However, iron ore had a strong week, rallying by over 5%. Crude oil weakened, as Brent crude fell by 1.8%, now trading at $44.2 a barrel, and US WTI (West Texas Intermediate) fell by 3.2%, trading at $39.2.

    The official manufacturing PMI came in at 51 for August, with any number above 50 indicating expansion, whilst the non-manufacturing PMI came in at 55.2, higher than forecast. Tesla, the US electric car manufacturer surged by almost 13% in one day following a five for one stock split, having rallied by 74% in the month of August alone, and up almost five times this year. However, on Wednesday, data released on the Eurozone showed that headline inflation had fallen by 0.2% in August, down from an increase of 0.4% in July. Deflation had impacted 12 of the 19 countries, including Germany, Italy, Spain, Portugal and Greece.

    This puts further pressure on the European Central Bank for yet more stimulus, following the central bank citing in June that one of the key reasons for increasing its emergency bond-buying programme from €750bn to €1.35trn had been due to weak inflation expectations.

    The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.

    Market Update 29th May – 7th June 2020

    Stocks climbed higher for the third week in a row, oil jumped, and Treasury yields rose to an 11-week high following a surprising gain in payrolls last month. The U.S. economy added 2.5 million jobs in May, while the unemployment rate declined to 13.3% from April’s record level, suggesting that an economic recovery is under way faster than previously thought.

    Even though economic activity will likely take a while to return to pre-crisis levels, last week’s employment data may be laying the foundation for a long-term recovery. Following last week’s rally, the S&P 500 has now erased its losses for the year. Some uncertainties that could trigger higher volatility remain, but the recent market advance highlights the importance of staying invested, even through the most difficult times.

    Further evidence of economies beginning to open up, combined with the announcement by the European Central Bank of a bigger than expected boost to its stimulus package, helped to broaden out equity market performance this week, with Europe and the Emerging Markets performing strongly.

    US equities had risen 2.2% over the week, whilst European stocks, which have markedly lagged the US since the market trough, rose 5.6%, whilst UK equities were up 5.5%. Japanese equities climbed 3.1%, Australian equities rose 4.2% and the emerging markets were up 6.3%. At a sector level, those areas that have been left behind in the market rally, were the best performing sectors with travel and leisure, financials and energy stocks all outperforming.

    Conversely, government bonds gave up some of their gains this week, as investors rotated out of safe assets into more risky areas.  10-year US Treasuries yields, which move inversely to price, rose over the week, now yielding 0.91%.  Similarly, German Bund yields rose, currently yielding minus 0.27%, and UK 10-year gilts are yielding 0.35%.  Gold also gave up some gains, falling by 2.65%, trading at $1,685 an ounce.

    Industrial commodities performed well, with copper, long considered a good indicator of economic activity, rising by 4.2%.  Brent crude oil, spurred on by news that OPEC had agreed to meet up over the weekend to discuss an extension of production cuts, increased by over 16% and is now trading at $42.30 a barrel. WTI is trading at $32.44.

    The dollar also gave up some of its strength, falling by just over 2% versus the Euro and Sterling, a further sign that investors are rotating into more risky assets across the globe.

    The Chinese Caixin services sector PMI (Purchasing Managers Index) rose above 50 in May, the first indication that services are no longer contracting in China, with 50 being the dividing line between contraction and expansion.  The index came in at 55, against expectations of 47.3, with new orders jumping by the fastest pace in a decade.  Manufacturing came in at 50.7, nudging into expansion territory for the first time since January.

    Travel and tourism stocks, unsurprisingly a laggard in the stock market recovery, had a good week as more countries agreed bilateral travel agreements between them, opening up the possibility of travelling abroad being relaxed in the coming weeks.

    Market Update 22nd – 29th May 2020

    Stocks ended the week higher, with the month of May marking the start of the gradual reopening of the domestic and global economy. A steady but slow decline in new infections has allowed the partial lifting of restrictions, boosting investor confidence. The more cyclical sectors, like financials and industrials, outperformed last week, while European equities reacted positively to a proposed €750 billion recovery fund by the European Commission. The proposal requires approval by all EU members and includes €500 billion of grants to member countries.

    The Euro is currently trading at $1.1115, a two month high in response to the proposal. Despite the brief pullback on Thursday evening, the US market still finished in positive territory, 3.76 % higher and this was followed by strong performance in Europe, with the Eurozone market up by 4.49%, and the UK up 1.38%. In Asia, the Hong Kong index lagged given the geopolitical tensions, up just by 0.14%, however, Japanese equities were the stand out performer in the region rising 7.30%

    The news that lockdown is easing across the globe also led to a rally in equity sectors leveraged to the reopening of the economy, including an outperformance in airlines, hotels, and leisure, versus sectors that have gained from the “stay-at-home theme”, including online retailers and consumer staples. In particular, travel companies rallied, with TUI up 50% and airlines including easyJet and British Airways-owner IAG 20% higher after Germany announced a vote this week on whether to relax travel restrictions by mid-June. This was followed by Spain saying on Saturday it would be open for foreign holidaymakers from July.

    The rally lost steam by the end of the week, however, over fears of worsening US-China relations after Beijing, this week announced proposals to implement a controversial national security bill over Hong Kong, raising fears over the future of its freedoms and its function as a finance hub. US Secretary of State Mike Pompeo reported to Congress on Wednesday that the Trump administration no longer considers Hong Kong to be autonomous from China, potentially jeopardising bilateral trade arrangements that apply to Hong Kong.

    In what was broadly a risk on week, demand for safe-haven faltered, although there was some appetite for core Government bonds late in the week as investors braced for the US to retaliate over the Hong Kong security bill. Overall for the week, 10-year US treasury yields (which move inversely to their bond price) were largely unchanged up just 1 basis point, whilst the yields for 10-year equivalent German Bunds and UK gilts rose by 5 and 1 basis points respectively. Gold also gave up some ground, down 0.71% for the period now trading at $1,730 per ounce.

    Brent Crude oil prices rose by 5.02% over the week to trade at $37.84 per barrel and WTI also rose 5.28% currently trading at $35.32. The Energy Information Administration showed that US crude oil and distillate inventories rose sharply last week, gaining 7.9 million barrels in the main due to imports, whereas analysts had, in fact, predicted a drop of 1.9 million barrels.

    Weekly Market Update : 23rd – 29th March

    This week, the strongest market rally since the 1930s has followed the steepest, fastest slump in equities, leaving many to wonder where we are on the COVID-19 crisis.

    It is important to realise however, that equities (and risk markets in general) will require two things to become durably positive:

    1. Confidence that the spread of the virus has been halted and that there is a visible end to the strict containment measures in most countries
    1. Confidence that the massive hit to the global economy will be short-lived.

    Stocks hit a low point on Monday, as expectations rose for the United States to follow other developed economies, including France, Germany, Italy and the UK, in delivering a huge fiscal stimulus package, worth as much as $2 trillion. This dwarfs the $800 billion rescue package delivered during the financial crisis of 2008/09. Whilst central banks have tackled illiquidity in markets, governments have increasingly stepped up to the plate with fiscal support, designed to plug the sudden stop in economic activity, as countries adopt social distancing measures to counteract the coronavirus.

    On Tuesday, the US Dow Jones index, which measures the share prices of 30 of the largest US companies, had its biggest one day rally since 1933, during the Great Depression, rising by 11.4%. In this week, the US Federal Reserve also pledged to buy an unlimited amount of US government bonds to act as back stop for the US investment-grade corporate bond market. US jobless claims surged by over 3 million, to a record 3.3m, and the US overtook China as the country with the largest number of coronavirus infections. Figures out of China on Friday showed a near 40% fall in industrial profits to the end of February, a drop of almost $60 billion.

    Bear market rally or has a low point been reached?

    As of 12pm London time on Friday, US equities have risen by 14.1% over the week, European shares rose 5.8%, with the UK market climbing 6.9%. Japanese shares rose 13.7%, whilst Australia’s gains for the week were all but wiped out on Friday, as Australian shares gained 0.5% over the week, as the rally in markets showed signs of petering out. Emerging markets increased by 6.0%, with South Korea returning 9.7%, whilst Indian shares fell 0.3%, having collapsed by 13% on Monday, their worst day on record, just ahead of Prime Minister Modi announcing a lockdown on its population of 1.3 billion people for twenty-one days.

    As the US Federal Reserve, European Central Bank and the Bank of England, amongst others, pledged to buy bonds and provide liquidity, some semblance of normality returned to haven assets as government bonds rallied. The yield on 10-year US Treasuries, which moves inversely to price, fell to 0.78%, German bunds rallied to minus 0.45% and UK gilts 0.36%. The gold price, which has been buffeted by investors desperate for liquidity, rose by 10.1%, now trading at $1,638 an ounce. The US dollar, which appreciates as global liquidity dries up, eased this week, as it fell by 2.6% and 5.1% versus the Euro and Sterling, now trading at $1.10 and $1.22 respectively, having fallen beneath $.1.15 versus Sterling on Monday.

    The bottom line is that we are further along to the end of this bear market, and the other side of the crisis could be very positive for risk assets, but we still need to be vigilant about the virus fallout and cannot sound the all-clear yet. We are nevertheless convinced that the massive economic damage will be mitigated by governments and central banks worldwide, and that it’s only progress on the virus itself that is holding markets back. When this crisis is over, we could well see another long-term bull market in equities and the opportunities will be rife.

    Weekly Market Update : 16th – 22nd March

    Extreme volatility persisted last week, with stocks declining sharply as the number of coronavirus cases globally continued to rise.

    The effects of social distancing have taken a significant toll on the global economy, hurt employment, and major central banks and governments around the world announced measures to support the economy.

    European countries announced a combined $1 trillion in new fiscal spending and the U.S called for a $1.2 trillion stimulus plan. The Federal Reserve cut rates by a full 1%, returning its policy rate back near zero in addition to restarting its bond-buying program.

    As of 12pm London time on Friday, UK equities had fallen 4.1%, with most of the pain being experienced within mid and small-cap companies, with the UK mid-cap index falling 11.7% versus 1.9% for large-cap companies. Japanese equities rose 1.7% as the Bank of Japan announced that it would double its purchases of Japanese equities through exchange-traded funds to 12 trillion Yen a year, equivalent to $112 billion.

    US equities experienced their single largest day loss since the crash of October 1987. US equities were down 11.1%, however, in Sterling terms, US equities were down 5.5%, as the US dollar appreciated dramatically against most currencies amidst a dollar funding squeeze. European equities were down 1.6% over the week, although in Sterling terms, they have actually risen 0.4% as Sterling came under pressure against most major currencies this week.

    The Japanese market was further boosted by rising expectations for fiscal support from the Japanese government. However, for Australian equities, exposed to financial and mining stocks, the market fell 13.1% over the week. Emerging markets dropped 14%, with China and Hong Kong remaining relatively defensive, falling 4.9% and 5.1% respectively. India fell 12.3% and Brazil lost 17.4%, with the latter being hit particularly badly from a further collapse in the oil price during the week.

    It was also a difficult week for defensive assets, despite the Federal Reserve enacting an emergency interest rate cut of 1% on Sunday, taking rates to a range of 0% to 0.25%. The stress came from a US dollar squeeze, as demand spiked from countries and companies funded in dollars to keep themselves financed. This culminated in liquidity drying up, as investors increasingly turned to their most liquid assets as cash was required, leading to a selloff in government bonds and, once again, gold.

    Yields, which move inversely to price, on 10-year US Treasuries rose to a peak of 1.26% on Thursday, having traded as low as 0.65% at the beginning of the week, whilst UK Gilts went from a yield of 0.40% to 1.01%, and German bunds swung from minus 0.58% to minus 0.15% over the same period. The government bond market started to behave more normally as the US Federal Reserve announced on Thursday that it would open up US dollar swap lines with more central banks globally.

    This coincided with the Bank of England cutting interest rates to 0.1% and expanding its bond-buying programme by £200bn, and the European Central Bank announcing a plan to buy $750bn of bonds. This led to government bonds rallying, with 10-year yields on US Treasuries falling to 1.01% by Friday, with German Bunds trading at minus 0.28% and UK Gilts 0.58%. Similarly, the gold price fell from $1,560 an ounce on Monday, to $1,451 at its lowest point on the same day, before clawing back some of those losses during wild durations over the remainder of the week, and now currently trading at $1,507 an ounce.

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