Market Commentary 19th November 2018

Posted by melaniebond
Market Commentary 19th November 2018
Equity Indices
The FTSE 100 fell this week, with the boost to exporters from a weaker pound failing to outweigh the impact of political uncertainty. The index appeared to be heading into positive territory several times this week, but ultimately failed to gain any ground and finished the week down by around 0.55%. Banking and housebuilder stocks were the worst affected this week, with Pharmaceutical companies also suffering losses. After falling early on in the week, mining stocks finished the week in positive territory as metal prices rose.
European equity markets were volatile this week. The FTSE All World Index – Europe ex UK rallied on Monday, then fell below its starting level for the week by Thursday, before another sharp rally on Friday left the index up by around 0.7% across the week. Germany’s DAX index also posted sharp rises early in the week before falling from Tuesday onwards to finish the week up by around 0.1%. Concerns around Italy’s budget plans continue to worry investors in Europe, with the uncertainty regarding Brexit and the UK government also prompting falls in European equities. Investors are seemingly concerned about the impact on Ireland’s economy should the UK leave the EU without a deal, with Irish equities faring particularly badly this week.
US equities were in negative territory during the first half of the week, but posted rises on Thursday and Friday. The S&P 500 index finished the week up by around 0.35%. Energy stocks weighed on the index after crude oil prices fell in the early part of the week, with a rise in the oil price helping these stocks to recover slightly towards the end of the week. US equities across the board rose on Friday after President Trump said the US may not have to impose further tariffs on Chinese imports, commenting that China seemed willing to negotiate a new trade deal.
Asian equities followed the general trend in equities across the globe this week, with losses during the first half of the week offset by a recovery on Thursday and Friday. The FTSE All World Index – Asia Pacific was broadly flat across the week with a 0.05% gain. Chinese equity indices rose across the week, aided by more positive rhetoric from the US on trade agreements. Japan’s Nikkei 225 index posted its third straight weekly decline, having fallen by nearly 8% from its 27 year peak seen last month. Japanese exporters and car makers which have a large exposure to China have seemingly been negatively impacted by the US-China trade issues.
Bond Yields
The 10-Year Gilt yield fell by almost 3% across the week, reaching 1.41% on Friday. The yield had spiked to over 1.5% by Wednesday, before the political drama which unfolded in the UK caused investors to seek the perceived safety of government bonds. Coupled with a weaker pound, this caused yields on UK government debt to fall sharply on Thursday.
10-Year German Bund yields fell by around 7% across the week, with yields reaching 0.37% on Friday as investors favoured the security of government debt. Continued political tensions between the Italian government and the EU caused the spread between 10 Year Italian government bonds and 10 Year Bund yields to widen to around 3.1%.
As US equities suffered, investors favoured Treasury stocks which caused the 10 Year Treasury yield to fall from 3.18% at the start of the week to 3.06% on Friday. The market is still indicating that the Federal Reserve is likely to hike interest rates in December by a further 0.25%, however, there is still uncertainty regarding how many times the Fed will raise rates in 2019 and whether economic data for the US will allow rates to be increased much further.
GBP / USD – Current 1.2841 Previous 1.2976

GBP / EUR – Current 1.1257 Previous 1.1456

The pound fell slightly against both the dollar and the Euro this week as currency traders sold off Sterling in the wake of the reaction to Prime Minister Theresa May presenting her proposed Brexit deal. Despite some headlines suggesting that the pound was plummeting, it finished the week down by around 1% against the US Dollar and 1.7% against the Euro. The uncertainty surrounding the political situation in the UK is unprecedented in modern times and the pound is likely to remain under pressure due to this.

The Gold spot price rose by around 1.5% across the week to around $1,220 as metal prices in general increased. The gold price seemingly benefitted from volatility in equity markets and concerns around global growth, with this outweighing the impact of the dollar strengthening across the week (a stronger dollar usually deters in investors from other currencies from purchasing gold, causing the price to fall).
Brent crude prices fell sharply during the early part of the week and were down by around 5% by Tuesday. Analysts commented that OPEC would likely agree to reduce output at their December meeting, with this perception causing the oil price to recover slightly to reach around $67 per barrel on Friday. Oil prices have been falling in recent weeks as a result of greater supply from OPEC, Russia and the US, alongside increasing concerns that a global economic slowdown will reduce the demand for Oil.