21st October 2019

It was a solid if not spectacular week for markets. Global developed markets in aggregate made small gains, with emerging markets having the better of the week. The UK’s FTSE 100 was weak, as the pound continued to strengthen on optimism a Brexit deal could be reached by the October 31st deadline. Uncertainty remained high with regards to the US-China trade war. In addition, further tensions are on the horizon, after the WTO authorized US trade tariffs on goods from Europe. The US earnings season started strongly, albeit expectations were low going into the season.

Last Week

  • Stocks did OK, but sold off slightly at the end of the week.
  • Another excellent week for the pound – pushed towards £1.30 vs US dollar.
  • Gold was little changed, as were bond yields.
  • Earnings season in the US kicked off – stronger than expected bottom line numbers from banks such as JPMorgan Chase, Bank of America and Morgan Stanley.
  • US retail sales unexpectedly fell 0.3%.
  • The Trump administration confirmed tariffs on $7.5bn worth of European goods will soon take effect, after the WTO ruled in the favour of the US.
  • Chinese GDP growth slowed to 6%, its slowest pace of growth since the first quarter of 1992.
  • In local news, it emerged that Woodford Investment Management would close, after Neil Woodford was stripped of responsibilities on his flagship fund.

This Week

  • Brexit will continue to feature heavily, as British PM Boris Johnson pushes to get his new Brexit deal through Parliament.
  • US earnings season continues with numbers from giants such as McDonalds, Procter & Gamble, Boeing, Caterpillar, Microsoft, Ford, Amazon.com, Intel, Tesla.
  • In terms of Economic data, the US will release services and manufacturing PMI data. The Eurozone is also set to release similar data.

Last Week’s Highlights​

Stock markets did OK last week, as global developed markets eked out small gains. The week had started strongly, but markets sold off as the week ended. Japanese markets led the way, with UK markets lagging. In terms of sectors, banks performed well, as did healthcare stocks. Poorly performing sectors were energy and technology.

In the UK, the FTSE 100 sold off, but the more domestically focussed FTSE 250 performed well. UK value also outperformed UK growth in the week. The moves were on the back of another good week for the British pound. British PM Boris Johnson and EU leaders agreed a new Brexit deal, but this still needs to be passed through UK Parliament, which is far easier said than done!

The British pound moved towards £1.30 vs the US dollar, territory it has not been at since May earlier this year.

Bond markets were little changed in the week. UK government bonds made small losses, while US treasuries finished flat. UK and US corporate bonds made positive gains with both having a very strong year so far.

In terms of economic data, US retail sales unexpectedly fell 0.3% in September, raising fears that a slowdown in business spending was now spilling over into consumer spending. In addition, China released data that its gross domestic product  grew 6%, its slowest quarter of growth since 1992.

Despite positive noises around trade, China announced last week that they wanted to have additional trade talks before signing what President Trump characterised as a “very substantial phase one deal”. In other trade news, the US was given the green light by the World Trade Organisation to hit the EU with $7.5bn worth of tariffs on goods.

The US earnings season kicked off last week, with expectations going into the season of a 4.6% decline on earnings from a year earlier. However, many companies posted stronger-than-expected bottom line numbers, including Netflix, Johnson & Johnson, and banking giants such as JPMorgan Chase, Bank of America and Morgan Stanley.

Asset Returns

Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source: Bloomberg.

Another good week for the pound, as it continued its recent resurgence against the US dollar.

Source: Bloomberg

Rory McPherson
Head of Investment Strategy