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    Market Update

    Market Update 22/11/20

    Last week saw the equity markets performing a balancing act between incoming positive vaccine news and ever-growing economic restrictions aimed at curbing the recent spike in virus cases and hospitalisations. The rotation out of the technology sector and into more cyclicals stocks continued, as the vaccine developments improved investor sentiment and confidence about next year’s outlook.Rather unexpectedly, the US government on Thursday started to remove some of the emergency support measures previously provided to the Federal Reserve (Fed), reducing the Feds ability to act with immediacy should there be further stresses in financial markets.

    US equities over the week fell 0.1%, whilst US technology stocks recorded a gain of 0.6%. European stocks rose 1.0%, as the rotation into more economically sensitive companies continued, albeit at a reduced pace versus last week. UK equities gained 0.9%, with mid cap stocks increasing by 2.0%. The Japanese stock market rose by 1.4%, benefitting from the signing of the Regional Comprehensive Economic Partnership (RCEP), a trade agreement ten years in the making covering fifteen countries in Asia including China, Japan, Australia and Malaysia. Third quarter Japanese GDP also surprised to the upside having increased by 5.0% versus expectations of 4.4%. The Australian stock market rose by 2.0%, whilst the Emerging Markets were up 1.0%.

    Despite the positive vaccine news, haven government bonds rallied over the week, responding to rising coronavirus cases and the news that the Fed had had some of its emergency lending measures removed. 10-year US Treasuries are currently yielding 0.84%, German Bunds -0.58% and UK Gilts 0.31%. However, gold sold off slightly, now trading at $1,865 an ounce, whilst the gold mining equity sector lost over 6%.

    Copper, considered a good gauge for global GDP growth, carried on its steady ascent, climbing a further 2.5%, having risen by over 50% since its low point in March. Crude oil also rallied over the week, with both Brent and US WTI (West Texas Intermediate) rising by over 4%, trading at $44.5 a barrel and $42.0 respectively.

    With news that the Pfizer/BioNTech vaccine has an efficacy rate of 95%, which was followed by Modernas having both an efficacy rate of 94.5% and the ability to be store for 30 days at refrigeration temperature, there are strong hopes for these vaccines to be approved very soon, perhaps even this side of Christmas. Whilst this is good news, it is still unknown how quickly the roll-out programme will take, with the manufacture of these vaccines a likely bottleneck.

    Additionally, infectious disease experts tell us that to achieve herd immunity, at least 60% of the population needs to be immune. This would require 63% of the population to be vaccinated assuming an efficacy rate of 95%. Although these vaccines are likely to be authorised for use in a much shorter time period than normal, they still come with known side effects including fever and fatigue. Preliminary surveys suggest a similar proportion of the population will be open to the vaccines as to the flu jab i.e. closer to 51%.

    Important data being released this week include personal income and spending breakdowns, FOMC minutes, and building permits.

    Market Update 13/11/2020

    The S&P 500 closed at a new record high and global equities posted a second week of gains following news of progress in developing a COVID-19 vaccine. Stocks surged on Monday after Pfizer and BioNTech announced that their vaccine had 90% effectiveness in their large study, triggering a wave of hope and optimism that a medical solution will address the health crisis and accelerate the economic recovery.

    Cyclical sectors that have been negatively impacted by the pandemic and are more sensitive to the reopening of the economy outperformed last week, while sectors that have benefited from the pandemic underperformed. A similar rotation occurred across asset classes, with small-cap and international stocks outpacing U.S. large-caps. 

    US equities had risen 0.8% for the week, whilst US technology stocks, up until now the big beneficiaries of the pandemic, fell 1.6%. Whilst European indices, which are much more cyclical in their makeup, rose 5.1%, with European smaller companies rising a massive 7.1%. UK indices, which have a relatively high weighting to both the financial sector and energy, rose 6.9%, with mid-cap stocks rising 8.8%. Japanese equities rose 2.7%, whilst Australian stocks gained 3.5%. The wider Asia Pacific region, excluding Japan, rose a modest 0.7%, having already been one of the better-performing regions year to date.

    The news on the vaccine led Government bonds and gold to sell-off. US Treasury yields, which move inversely to price, rose as high as 0.98%, although they have since retreated and are trading at 0.88%. Both German bund and UK gilt yields also rose over the week, now trading at -0.55% and 0.34% respectively. Whilst gold fell by 3.8%, now trading at $1,878 an ounce. The gold mining sector, which is a geared play on the precious metal, fell by 9.3% over the week, making it one of the hardest-hit sectors.

    The headline moves in equity indices masked the huge dispersion in returns at stock level. Rolls-Royce, the manufacturer of jet engines for commercial aeroplanes, rose by 44% on Monday, its biggest ever one day gain. Whilst stocks that have benefitted from work at home lockdowns such as Zoom, the video conferencing technology company and Ocado, the online supermarket, suffered sharp share price falls, both losing close to 15% in value on Monday at their most extreme moment. Some of these moves unwound later in the week, but nonetheless, cyclical stocks remained very much ahead by the end of the week.

    Energy stocks were also a big winner over the week as crude oil jumped in price, with Brent crude rising 9.4%, now trading at $43.1 a barrel and US WTI (West Texas Intermediate) $40.6. Similarly, the energy equity sector rose by over 12% for the week.

    Important economic data being released this week include retail sales and industrial production on Tuesday, building permits on Wednesday, and the leading index on Friday.

    Market Update – 6/11/2020

    U.S. equities logged their best weekly gain since early April as investors reacted to the increased possibility of a divided government, including a potential Biden win and continued Republican control in the Senate. However, the market began to price in the scenario of a split government that potentially reduces the likelihood of immediate tax hikes and increased regulations, while not removing the potential for an agreement on some form of fiscal-aid package.

    Shares in Europe rallied in sympathy with U.S. equities while also receiving a lift from the generally strong quarterly earnings reported by European corporations and the additional stimulus measures announced in the UK. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 7.02% higher, while Germany’s DAX Index rallied 7.99%, France’s CAC 40 gained 7.98%, and Italy’s FTSE MIB climbed 9.69%. The UK’s FTSE 100 Index advanced 5.97%.

    Economic news largely took a back seat over the week, however, Purchasing Managers Indices, considered lead indicators as to the outlook for companies, were unambiguously positive. The US Manufacturing PMI came in at 53.4, slightly higher than forecast, with any number above 50 indicating expansion. Whilst the US Institute for Supply Management Manufacturing index came in at 59.3, smashing expectations, with the new orders subcomponent coming in at 67.9 versus forecasts of 62.

    Even in Europe, the Markit Manufacturing PMI came in at 54.8, ahead of forecasts, although the service sector PMI remained below 50, indicating contraction, at 46.9. In the UK, the manufacturing PMI came in at 53.7 and 51.4 for the service sector. This was mirrored in China, with the Caixin composite PMI for both manufacturing and service sector companies coming in at 55.7, higher than the previous month.

    On Thursday, faced with the beginning of a second lockdown, the Bank of England announced a massive additional £150 billion quantitative easing program. This was followed up shortly after by an announcement from the UK’s Chancellor, Rishi Sunak, that the government’s furlough scheme would be extended until March of next year.

    Despite the US election yet to have been decided, with the possibility that the result gets dragged through the courts, in the coming weeks there may be other news that begins to dominate investors thinking. The announcement of Covid19 vaccine trials should start to come through, with high hopes for a credible breakthrough, which will inevitably take centre stage for markets.

    Important economic data being released this upcoming week include the Unemployment Rate, the Fed’s upper bound key interest rate, and various PMI series.

    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.

    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.

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