Cat: CFM News
15 May

Market Commentary May 2014

Global equity markets were broadly positive over the month of April, led by the UK and Europe. In the UK, business optimism hit historic highs while earnings data displayed wage growth above the rate of inflation. Within Europe, consumer and business confidence indicators increased and various market participants speculated on the announcement of further monetary stimulus into the economy. US markets suffered from some profit taking in the technology sector against positive employment and retail sales data. Japanese markets were impacted by recent currency appreciation and nervousness over April’s consumption tax increase. Fixed interest markets were generally positive with lower credit quality bonds outperforming.


US equity market returns were mild over the month of April as broader market returns were forced lower by losses in the technology sector. First quarter GDP figures were announced much lower than expected, partly due to adverse weather conditions at the start of the year. The minutes from the recent central bank meeting revealed no reference to earlier suggestions that the bank would look to raise interest rates, shortly after ending its stimulus program. Recent data showed that the trade deficit widened by more than expected in February with imports into the US surpassing exports. The unemployment rate was unchanged at 6.7%.

European equity markets outperformed with fair disparity within sector returns. The oil & gas sector posted strong returns while the technology sector lagged, adopting global trends. The European Central Bank left interest rates unchanged at the banks recent meeting. Mario Draghi added that there was some discussion around further quantitative easing and speculation around monetary stimulus supported market returns. The unemployment rate for February was announced at 11.9%.

UK equity markets were strong following a raft of positive macroeconomic announcements. The IMF upgraded the UK’s 2014 growth forecast to 2.9% from 2.4%, the highest growth rate among all other G7 economies. The Bank of England maintained interest rates and the current stimulus program at the central banks’ April meeting. CPI inflation was announced at 1.6% in March, falling for the sixth consecutive month. The largest downward contribution came from transport, particularly motor fuels. UK unemployment was announced at 6.9% in February, lower than 7.1% expected and the lowest rate recorded in five years. Sterling reacted positively to the announcement.

Asian equity markets delivered a positive return over the month led by the Philippines. Chinese first quarter GDP was announced at 7.4%, higher than 7.3% expected but the lowest growth rate in 18 months and lower than the government’s growth target for 2014. Japanese equity markets underperformed over April. Investors were hesitant over the consumption tax increase implemented at the start of the month. In addition, the Bank of Japan confirmed no additional stimulus would take place, against some expectations.

Emerging market equities slightly lagged developed markets, with returns little changed over the April period. Latin America outperformed with Brazil delivering above consensus retail sales, lower unemployment and real income growth. Mexico also announced stronger manufacturing data, firmly in expansion. Russian markets suffered with tensions in Ukraine unresolved and the threat of further sanctions remaining. Credit ratings agency Standard & Poor’s downgraded Russia’s rating by one notch to BBB-, as the central bank increased interest rates from 7% to 7.5%. Markets in Turkey rose following results from the local elections and data showing the country had narrowed its current account deficit.

In fixed interest markets, returns were broadly positive over the month, with lower yields leading to higher prices. The US central bank continued to taper its quantitative easing program, trimming a further $10bn from monthly asset purchases. Inflation generally remains lower than most developed economy central bank targets, providing a more supportive environment for bonds. Greece issued €3 billion of 5-year notes, in the first Greek bond issuance since the Euro crisis.

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Cat: CFM News
14 Mar

Market Commentary March 2014

Global equity markets posted positive returns over the month with developed markets delivering strongest returns. US equity markets surpassed recent market heights while in the UK, economic growth was upgraded for the fourth consecutive period, encouraging market gains. The European Central Bank president emphasised his commitment to avoid deflation in Europe. Asian and emerging markets were positive with the latter suffering from conflict between Russia and the Ukraine. Within fixed interest markets, yields and prices were much unchanged following a quiet month in the asset class.


US equity markets closed at an all-time high as investors digested stronger than expected consumer spending figures and manufacturing data. US unemployment was announced at 6.6% in December, falling from 6.7% the previous month. The Federal Reserve reassured that a fall in unemployment past 6.5% will not trigger an instant interest rate rise. The House of Representatives met February’s deadline to raise the US debt ceiling until March 2015, allowing the Treasury to borrow additional funds.

European equity markets were positive following encouraging macroeconomic data. Mario Draghi, President of the ECB, emphasised that risk of deflation would not be ignored in the banks monthly meeting. The bank added that recent disinflation was attributable to falling food and energy prices. Eurozone fourth quarter GDP was announced at 0.3%, higher than expected with France, Germany, Portugal and the Netherlands all posting better than expected economic growth. Unemployment was announced at 12% in January, in line with expectations. Matteo Renzi was confirmed to be Italy’s new Prime Minister pledging millions in tax cuts and more generous unemployment benefits.

UK equity markets experienced gains with economic growth upgraded in the largest run of upgrades since 1997. UK fourth quarter GDP was announced at 0.7%, in line with initial forecasts. CPI inflation was announced at 1.9% in January, falling from 2% due to downward pressure from recreation & culture, furniture & household and alcohol & tobacco sectors. Unemployment nudged higher to 7.2%, from 7.1%. The Governor of the Bank of England announced that the bank would not hike interest rates ‘for some time to come’ with the base rate potentially reaching 2% by 2017. UK house prices increased 9.4% over the year leading up to February, according to data provided by Nationwide. This marks the largest annual gain since May 2010.

Asian equity markets provided subdued returns amid mixed macroeconomic data. China registered strong trade data over the month with exports increasing 10.6% and imports to 10% over the year, taking into consideration distortions due to the Chinese New Year. China’s renminbi currency experienced a sharp fall towards month end reflecting unwanted intervention by the Chinese central bank. Japanese equity markets posted negative returns as fourth quarter GDP was announced at 0.3%, lower than initial forecasts.

Emerging market equities were positive, albeit lagging behind developed markets. Europe, Middle East and Africa all led market gains while Latin America and Russia had a negative impact on the broader market. Brent crude oil and natural gas prices both rose following concerns over supply due to the issues faced between Russia and Ukraine. South African equity markets were strong led by mining companies and exporters due to falls in the rand. In Brazil, interest rates were increased from 10.5% to 10.75% while in Chile, rates were cut from 4.5% to 4.25%.

Fixed interest markets were fairly quiet over the month with yields and prices remaining relatively constant. Spreads on high yield debt and peripheral eurozone bonds fell, leading to higher total returns. In the US, government bond yields rose initially following the announced fall in unemployment. This was recovered later in the month as investors sought safety after disruption between Russia and the Ukraine.

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Cat: CFM News
16 Apr

Market Commentary April 2014

Global equity markets were broadly flat over the month despite various adverse market events. The MSCI World index, representing global stock markets, reached an all-time high in March with global market capitalisation standing at $65.3 trillion. Tension between Russia and Crimea dominated the headlines, negatively impacting Russian markets. Japanese markets recovered from steep losses seen at the beginning of the month as investors became anxious over the upcoming consumption tax increase. Fixed interest markets were mild, amid mixed macroeconomic data.


US equity markets ended slightly higher with little variation over the month. The US Federal Reserve announced a further $10 billion a month reduction in monetary easing at the meeting in March. This was widely expected by market participants. The unemployment rate was announced at 6.7% in February, increasing from 6.6%. Existing home sales fell, encouraged by severe weather and worsening affordability. Credit rating’s agency Fitch upgraded the outlook on the US from ‘negative’ to ‘stable’ after the US averted its debt ceiling.

European equity markets were little changed, as well as no change in monetary policy. The European Central Bank announced no change in interest rates or quantitative easing, despite the IMF encouraging additional liquidity. Eurozone fourth quarter GDP was confirmed at 0.3% in line with expectations. CPI inflation fell to 0.5% in March, the lowest level since November 2009 and well under the target of 2% inflation. Recent business and consumer surveys suggest an improving positive economic outlook despite current affairs in Crimea. Monthly labour figures show that the number of those unemployed has continued to fall, albeit at a low rate.

UK equity markets underperformed with negative returns over the month. Fourth quarter GDP was confirmed at 0.7%, in line with estimates. The 2014 growth forecast was upgraded in its largest upward revision between budgets in 30 years. The Bank of England maintained interest rates and the current monetary easing program was left unchanged. Unemployment was announced at 7.2% in January, marginally higher than expected. UK CPI inflation fell to 1.7% in February primarily due to lower transport costs, housing & household services and clothing & footwear.

Asian equity markets revealed fair dispersion between regions with strong returns in India, and underperformance in China. China registered a trade deficit of $23 billion in February, compared to a surplus of $33 billion the previous month, marking the first trade deficit in 11 months. Chinese retail sales recorded their lowest rate since 2004, while industrial production was posted at levels last seen in 2008. New Zealand was the first G10 country to raise interest rates since the financial crisis as the central bank raised interest rates to 2.75% from 2.5%. Japanese equity market returns ended flat after a volatile month. Fourth quarter GDP was confirmed at 0.7%, lower than initial forecasts.

Emerging market equities outperformed their developed counterparts with Latin America posting the strongest gains. Brazilian markets were boosted by strong economic data and a positive political outlook. Interest rates were cut in Chile to 4% from 4.25% to support economic growth. Investors were closely tied to events in Crimea where Vladimir Putin signed a treaty accepting Crimea as a sovereign state. President Obama confirmed there would be visa bans and asset freezes in Russia, as well as sanctions against senior officials. World leaders later suspended Russia from the G8 until the country ‘changes its course’. Credit rating’s agency Standard & Poor’s downgraded the outlook on Russia from stable to negative.

Fixed interest markets were mild with corporate bonds marginally outperforming government bonds. In the US, yields rose alongside the decision by the Federal Reserve to further reduce its quantitative easing program. Investors have recently shown strong demand global high yielding bonds and many recent new issues have been oversubscribed.

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Cat: CFM News
14 Feb

Market Commentary February 2014

After successfully completing our first 100 mile cycle in 2013 the ‘CFM cycling team’ was looking for a new challenge for 2014 when one of our ‘team’ suggested that we participate in the London to Paris Cycle.


Global equity markets declined over the month with Asia and emerging markets experiencing the largest falls. The US central bank decided to further reduce stimulus which adversely affected equity markets, despite being widely expected by market participants. A number of emerging market currencies were negatively impacted, prompting various central banks to raise interest rates. Economic data was broadly positive, particularly unemployment which has fallen further across core developed economies. Fixed interest markets produced positive returns as investors searched for safety on the back of equity market volatility.

US equity markets pulled back from all-time highs with a negative start to the year. The US Federal Reserve announced further reductions to monetary stimulus given an improved economic outlook. The bank reduced asset purchases by $10 billion to $65 billion per month. Fourth quarter GDP was announced at 3.2% with strong growth driven by increased consumer spending and business investment. US unemployment was announced at 6.7% in December, falling to the lowest level since October 2008. A large proportion of the reduction was attributable to the number of workers falling out of the labour force altogether. US pending home sales experienced a sharp fall of 8.7% in December. Economists have identified disruptive weather and rising property prices as being the main contributing factors.

European equity markets fell in line with global equity markets. Heathcare, utility and financial sectors avoided the largest falls while technology, consumer staples and energy underperformed the broader market. Eurozone unemployment was announced at 12% in December, falling marginally from the previous month. The number of people unemployed had its largest monthly fall since April 2007. Recent manufacturing data has been strong highlighting firm expansion within private sector companies.

UK equity market prices decreased over the month despite various positive announcements. UK unemployment was announced at 7.1% in November. The number of people employed experienced its largest quarterly rise since record began in 1971. Mark Carney reassured there would not be an imminent rise in interest rates, despite the rate of unemployment drawing closer to the central bank 7% target. CPI inflation was confirmed at 2% in December. Falling utility and food prices helped reduce the rate over recent months. UK house prices rose 1.4% in December according to data provided by Nationwide. This is the highest monthly increase in 4 years. Retail sales recently recorded the fastest annual sales growth in over 9 years following a strong boost over the Christmas period.

Asian equity markets were negatively impacted by US central bank action as well as country specific issues. The People’s Bank of China provided an unspecified amount of emergency cash directly to a number of banks through its short-term lending facility. This was to help boost market liquidity. Chinese economic growth was recorded at 7.7% over 2013. This is the slowest annual growth rate in 14 years. Recent Chinese manufacturing data has been confirmed in line with expectations, remaining in expansion.

Emerging market equities experienced losses with markets adopting a ‘risk-off’ approach. Countries with higher levels of debt, inflation and larger current account deficits were worst affected. Interest rates were increased across multiple central banks including Brazil, Turkey, South Africa and India in order to prevent further currency depreciation. Macroeconomic data from Mexico was positive with stronger than expected industrial production and retail sales, while data from Russia and Turkey was less encouraging.

Fixed interest markets were broadly positive over the month with investors seeking safety from equity markets. Core government bond yields reduced leading to positive total returns. Corporate bonds also delivered positive returns while high yield bonds underperformed, adopting aversion to risk.

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