Losses in markets from the beginning of the week were partially reversed as a powerful rally in equity markets gained ground on Thursday, despite the latest US inflation data coming in stronger than forecast. Whilst the rally in markets was not intuitive, commentators put it down to a combination of markets being oversold and weakening lead indicators, such as a fall in US rental costs. UK gilts and the British pound also rallied, as expectations rose that the UK government was going to row back further from the tax-cutting pledges made in the mini-budget, as the chancellor, Kwasi Kwarteng was expected to be sacked on Friday.
As of 12pm on Friday, London time, US equities rose 0.8% for the week, whilst the US technology sector was flat. European equities rose 0.7%, whilst UK equities fell 0.9%, with the Bank of England expected to have to hike rates more aggressively to counteract the government’s growth plans, in order to get inflation under control. Japanese stocks lost 0.45%, whilst Australian equities fell 0.1%. Emerging markets were hit particularly badly, falling 4.8%, with the Hong Kong Hang Seng falling 6.5% as China tightened Covid curbs, warning against any relaxation in its fight against the coronavirus.
Government bonds sold off at the beginning of the week, as UK pension funds managed by liability-driven investment managers continued their forced selling of assets to meet margin calls from banks. On Tuesday, the Bank of England extended its emergency bond-buying programme to include index-linked bonds, helping to dampen the extreme levels of volatility experienced in recent days. By the end of the week, on expectations of a U-turn by the UK government, bond prices rallied, with the yield on 10-year Gilts, which moves inversely to price, falling from a peak of 4.61%, down to 3.95%. 10-year US Treasuries yields, which also bounced around during the week, finished the week at similar levels to where they started, trading at 3.89%. It was a similar story for German bunds, with yields back at 2.19% by Friday.
Despite gains this week, Sterling still down by over 16% versus the dollar year to date Sterling recovered some of its losses against the dollar, trading at $1.125, and against the Euro, at €1.155. However, this still leaves sterling down by over 16% against the dollar year to date, and just over 3% against the Euro.
The US inflation data took the shine off gold this week, as expectations remain high for a further 0.75% US interest rate hike in November. Gold fell by 2.9%, now trading at $1,660 an ounce. Crude oil also fell, giving back some of its gains last week, following the announcement of supply cuts by Opec+ (Organisation for Petroleum Exporting Countries + Russia), with Brent crude dropping by 4.4%, now priced at $93.6 a barrel. European natural gas also weakened further, dropping another 7% this week, now priced at €145.3 a megawatt hour.
Lawsons Equity Limited is a company registered in Malta with company number C49564 and Licenced by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994. Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries click here
In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Financial Services Contracts Regime, which allows EEA-based firms to operate in the UK for a limited period to carry on activities which are necessary for the performance of pre-existing contracts, are available on the Financial Conduct Authority’s website.
Copyright 2020 Lawsons Equity Ltd | Designed by Echo
Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Lawsons Equity Limited has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Lawsons Equity Limited does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Lawsons Equity Limited.