Cat: CFM News
18 Nov

Market Commentary November 2014

Global equity markets were mixed over the month. Earlier in the period markets reacted negatively to the IMF downgrading its global growth forecast including sharp cuts in the Middle East, Russia and Japan, whilst sharply upgrading the US. Some markets came back to deliver positive returns for investors following a raft of more encouraging economic data and further stimulus measures announced by multiple central banks. Lower commodity prices adversely impacted selective emerging countries which are more reliant on revenues from materials and energy.
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US equity markets provided strong relative returns over the month, as the market pulled back from an early dip. More defensive sectors including consumer staples and health care outperformed, while consumer discretionary and IT lagged the broader market. The US Federal Reserve announced it would be ending its stimulus program, which was widely anticipated by market participants. US unemployment fell to 5.9% in September, lower than expectations.

European equity markets ended the month lower, following worsening economic growth expectations. Industrial production in Germany experienced its greatest month-on-month decline since January 2009 in August. This was hindered by weak demand across Europe and China, as well as trade disruptions with Russia. Interest rates were left unchanged at the European Central Bank meeting. The bank however unveiled plans for its private quantitative easing package which included two years of asset purchases to stimulate the economy. The President later announced that the bank would consider additional stimulus measures if required. Eurozone inflation fell to 0.3% in September, the lowest level recorded in 5 years. 8 member states logged deflationary numbers. Unemployment was unchanged at 11.5% in August, in line with expectations.

UK equity markets suffered marginal losses over the month. UK third quarter GDP fell to 0.7% with the services sector showing the greatest contribution, slightly offset by decreases in mining and quarrying. UK CPI inflation fell to 1.2% in September, its lowest level in 5 years. The fall was largely attributable to lower transport costs and lower prices on recreational goods. Unemployment fell to 6% in August, falling lower than expected. Retail sales fell to -0.3% in September, largely impacted by significant falling clothing and footwear sales. The Bank of England announced no changes at its central bank meeting.

Asian equity markets performed well over the month, led by Hong Kong and Australian markets. Chinese third quarter GDP fell to 7.3%, driven by lower property investment, credit growth and industrial production. This marked the lowest annual growth rate in 5 years. CPI inflation fell to 1.6% in September, almost at a 5-year low. Chinese trade data surprised markets with import and export data much higher than expected. Japanese equity markets recovered early losses following the announcement of aggressive stimulus measures by the central bank. Japanese unemployment fell to 3.5% in August, lower than market expectations.

Emerging market equities ended marginally higher, led by the Emerging Asia region. Further falls in the oil price had a negative impact on more dependent countries, including Russia and UAE. The Russian central bank increased interest rates by 1.5% to 9.5%, in order to combat against currency falls. Poland cut rates by 0.5% to 2%, following more positive economic data. Dilma Rousseff narrowly won the Brazilian presidential election on behalf of the Workers’ Party. Equity markets suffered initially as Dilma was seen as less business orientated, compared to her opposition.

Fixed income markets delivered positive returns for investors, following lower bond yields, leading to higher prices in core government and corporate bonds. This came as central bank minutes generally supported a more hawkish view which pushed out expectations of an interest rate rise. The US central bank confirmed the end to its quantitative easing program, which will cease further bond purchases. Conversely, the Bank of Japan announced it would be buying more government bonds, as part of its additional stimulus program.

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Cat: CFM News
10 Sep

Market Commentary September 2014

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Global equity markets were positive over the month of August. US equity markets were boosted by generally positive macroeconomic data while conversely in Europe, economic growth deteriorated and deflationary fears remained. Asian and emerging markets provided gains despite continued tensions between Russia and Ukraine. Fixed income markets were well grounded, following elevated demand for low risk assets.

US equity markets surpassed all-time highs over the month, ending with strong gains. Consumer sentiment indicators rose showing greater optimism among high income households. Manufacturing data also rebounded with production firmly on track over the third quarter. Second quarter GDP was revised up to 4.2%, largely due to an increase in non-residential fixed investment. Unemployment rose to 6.2% in July, higher than expectations.

European equity markets were positive for the first month since May. Central bank President Mario Draghi provided a boost to markets as he hinted that the bank was ready to utilise additional stimulus measures if necessary. Italian second quarter GDP was announced at -0.2%, lower than expectations and placing the country’s economy in technical recession. Eurozone inflation estimates fell to 0.3% in August, from 0.4% in July. Italy announced inflation at -0.2%, entering deflation. Unemployment remained unchanged at 11.5% in July.

UK equity markets gained, despite a generally disappointing month of data announcements. The Bank of England maintained its QE program and interest rates at its central bank meeting. The minutes later revealed that two of the nine committee members voted for a rise in interest rates. This was the first time since July 2011 that all members did not vote unanimously. UK average wages recorded their lowest rise on record. Data was however distorted due to a high number of employees deferring their bonuses following more advantageous tax rules. CPI inflation fell to 1.6% in July, with falling clothing prices providing the largest downward contribution. UK retail sales were lower than expected in July, recording their lowest annual gain since November. Unemployment fell to 6.4% in June, the lowest rate since late 2008. UK house prices increased 10.6% year-on-year in July, with the rate decreasing from the previous month, according to data provided by Nationwide.

Asian equity markets were positive with gains across the majority of single country markets. Chinese manufacturing data (provided by HSBC) was recorded at its highest rate in 18 months in July with the sector demonstrating expansion. Indian equity markets were supported by higher than expected economic growth and the prospect of future support from the Indian government. Japanese second quarter GDP was announced at -6.8% annualised. Consumers made significant purchases in the first quarter, ahead of the impending consumption tax increase, which had a significantly negative impact on second quarter data. Japanese unemployment rose to 3.8% in July, higher than consensus expectations. No changes were announced at the Bank of Japan’s central bank meeting.

Emerging market equities posted another month of gains, supported by Latin America which was the strongest performing region, driven by the Brazilian stock market. The Chinese equity market was negatively impacted by poor data announcements. Interest rates were cut by 0.25% to 3.5% in Chile, while rates were raised in Colombia by 0.25% to 4.5%. In retaliation to recent sanctions on Russia, President Putin announced a ban on food imports coming from the EU, US, Canada, Australia and Norway for up to one year. This adversely impacted markets given that Russia is the 5th biggest food importer in the world.

Fixed income markets also performed well, led by a strong rally in core government bonds which outperformed higher credit risk markets. This was following further Russian/Ukraine tensions and lower inflationary pressures. Comments from the ECB president provided further support, while a divide between the Bank of England committee members showed greater pressure to raise interest rates.

Cat: CFM News
17 Oct

Market commentary October 2014

Global equity markets suffered losses led by weakness in Asian and emerging markets. Poor data in China as well as protests in Hong Kong caused some disruption. Broader emerging markets were impacted by falling commodity prices which have seen increased supply combined with weaker demand from China. The European Central Bank surprised markets with a further cut in interest rates, while the US Federal Reserve continued to tighten monetary stimulus. In the UK, markets failed to gain traction by month end following nervousness around the referendum vote. Fixed income markets suffered but later offset some losses as investors sought after safety from global events.
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US equity markets fell over the month, with the broader market brought lower by cyclical sectors including energy, consumer discretionary and IT. Second quarter GDP rose to 4.6% in its final estimate, mostly attributable to increasing business investment and exports. The US Federal Reserve announced further reductions to its quantitative easing program, reducing monthly purchases from $25bn to $15bn. Unemployment fell to 6.1% in August, in line with expectations. Retail sales rose to 0.6% in August, led by a sales increase in automobiles and building materials & garden supplies. US new home sales rose to 504,000 in August, highlighting the biggest one month jump since 1992.

European equity markets were marginally positive over the month. The European Central Bank announced an interest rate cut to 0.05% and further lowered its negative deposit rate. The bank added that it would initiate a private quantitative easing package to help boost lending and liquidity. The euro was adversely impacted by the news, having a favourable outcome for export companies. Eurozone industrial production surpassed expectations, rising to 2.2% in July, higher than the previous months’ figure of nil growth.

UK equity markets ended the month lower, following market nervousness ahead of the referendum vote. The Scottish referendum ended with a 55% majority voting against the country becoming an independent nation. The latest Bank of England minutes revealed that 2 members (out of 9) again voted for an increase in the interest rate, taking the view that wage inflation may rise soon. Unemployment fell to 6.2% in July, lower than 6.4% the previous month. CPI inflation fell to 1.5% in August, attributable to lower fuel and food & non-alcoholic drink prices. UK retail sales rose 3.9% in August, driven by a sales increase for household goods.

Asian equity markets experienced sharp falls over the month, following a period of poor macroeconomic data and lower commodity prices. Chinese industrial production, retail sales and fixed asset investment all fell short of expectations. In Hong Kong, thousands protested against planned changes to the country’s democratic elections system, causing stock market and currency weakness. The central bank later announced liquidity measures to support markets. The People’s Bank of China also reported it would be injecting 500bn yuan stimulus into the five biggest banks, in the form of low duration, low interest rate loans. Japanese equity markets gained with export companies benefitting from yen depreciation. No changes were announced at the Bank of Japan meeting.

Emerging market equities were negatively impacted by commodity losses and poor data in China, as well as a number of adverse market events. Brazilian markets suffered as a result of election opinion polls showing Dilma Rousseff gaining momentum as the country’s future President. In Russia, President Putin outlined plans for ceasefire in eastern Ukraine, although the Ukrainian Prime Minister dismissed the proposal. The US and EU later implemented a new round of sanctions targeting Russia’s financial, energy and defence sectors. Turkish markets suffered following weaker second quarter GDP and higher inflation.

Fixed income markets were initially hindered by investors bringing forward interest rate rise expectations, leading to higher government bond yields. The bond market was later supported by investors seeking safety from global events. Investment grade corporate bonds generally outperformed government b

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Cat: CFM News
15 Aug

Market Commentary August 2014

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Global equity markets experienced steady gains until the final day in July. Markets retreated following various adverse events including; further Russian sanctions, defaulted debt in Argentina and lower than expected Eurozone inflation. Geopolitical tensions also intensified after a Malaysian Airline plane crashed on the Ukraine/Russia border. In fixed interest markets, government bonds were supported by market uncertainty, leading to positive returns for investors.

US equity markets ended marginally lower due to events at the end of the month disrupting sanguine markets. The US Federal Reserve announced plans to end its quantitative easing program in its June meeting, proposing October as the final month of stimulus. The central bank proceeded to reduce monthly purchases from $35bn to $25bn in its July meeting. Second quarter GDP was announced at 4%, higher than expectations and considerably higher than first quarter’s economic contraction. US unemployment was announced at 6.1% in June, lower than expectations and the lowest rate in 5.5 years.

European equity markets suffered fair losses over the month, with the broader index being dragged lower by the Portuguese equity market. First quarter GDP was confirmed at 0.2% in the final reading. Eurozone unemployment was announced at 11.6% in May, lower than the expected rate and the lowest rate recorded since December 2012. CPI inflation fell to 0.4% in July, the lowest rate recorded since October 2009. French and Italian industrial production data showed fair declines in the sector with data coming in significantly below expectations.

UK equity markets remained little changed by month end. The Bank of England agreed to maintain interest rates and its quantitative easing program at its July central bank meeting. Later at the Commonwealth Games business conference, Mark Carney said interest rate increases will be more restrained than in the past as the economy continues to face challenges. He added that rates would not rise until real wages rise consistently. UK second quarter GDP was announced at 0.8%, placing economic growth slightly ahead of its pre-crisis peak. Unemployment fell to 6.5% in May, the lowest rate since 2008. CPI inflation rose to 1.9% in June, higher than expectations led by higher clothing, food & drink and air transport costs. UK house prices recorded their highest annual growth rate since January 2005, with prices rising 11.8% year-on-year in June, according to data provided by Nationwide.

Asian equity markets were strong, led by China which benefited from various positive economic data announcements. Chinese second quarter GDP was announced at 7.5%, surpassing expectations and in line with the government’s target rate. Manufacturing data also showed expansion, recording the highest rate since December 2013. The recently appointed finance minister of Korea announced various stimulus measures to boost the economy, having a positive impact on markets. Japanese equity markets were boosted by the prospect of the government increasing its equity allocation within its sovereign pension fund.

Emerging market equities were positive, buoyed by encouraging Chinese economic data. On the downside, President Obama announced further sanctions on Russia which targeted a series of large banks, energy and defence companies. The EU imposed further sanctions on Russian businesses, including curbs on Russian banks trading in European markets. The Bank of Russia raised interest rates from 7.5% to 8%, due to concerns around inflation and geopolitical tensions. Argentina defaulted on its debt after failing to make a $539m payment to a group of bond holders. Credit rating’s agency Standard & Poor’s downgraded the country’s credit rating to ‘selective default’.

Fixed interest markets experienced broadly positive returns, largely due to investors seeking safety from unfavourable market events. Bonds with lower credit quality underperformed, along with a pick-up in volatility. Markets were uneasy following serious credit issues with one of Portugal’s largest banks. Peripheral Eurozone government bonds outperformed over the month.