Cat: CFM News
17 Jul

Market Commentary July 2014


Global equity markets were broadly positive over the month with emerging outperforming developed markets. Indian equities continued to experience buoyant returns from the recent election win. In the UK, comments from the central bank governor escalated expectations of an interest rate rise, having an adverse effect on markets. The announcement of an interest rate cut in Europe had a positive impact on the market initially, although ended June in a loss. Fixed interest markets were mixed with corporate bonds generally outperforming government bonds due to their higher level of yield.

US equity markets surpassed all-time highs driven by returns from less economically sensitive companies. The final reading of US first quarter GDP was confirmed at -2.9%, with bad weather having a worse than expected impact. The Federal Reserve announced a further $10bn per month taper of asset purchases at the central bank’s monthly meeting. Interest rates were left unchanged at 0.25%. US unemployment remained unchanged at 6.3% in May, lower than expected. US inflation was confirmed at its highest rate in over 18 months in May, at 2.1%. Housing data revealed an increase in sales, but slowing price appreciation as well as a sharp reduction in mortgage applications.

European equity markets were marginally lower over the month, led by losses in the financials sector. The European Central Bank announced an interest rate cut from 0.25% to 0.15%, a new historic low. The deposit rate was cut from 0% to -0.1%, therefore costing banks to deposit money at the bank. Eurozone inflation fell to 0.5% in May, down from 0.7%. Manufacturing data remained positive, with most recent figures showing expansion. Economic confidence indicators revealed a drop, below consensus expectations. Unemployment fell to 11.7% in April but remained elevated relative to developed market peers.

UK equity markets failed to deliver positive returns, amid a period of low volatility. Markets were adversely affected by comments from Bank of England governor Mark Carney, who said an interest rate rise could happen sooner than markets currently expect. The bank later announced mortgage lending restrictions affecting those with lower income to mortgage values. First quarter GDP was confirmed at 0.8%, in line with previous estimates. UK CPI inflation was announced at 1.5% in May, lower than expected largely due to falling transport services costs. Unemployment fell to 6.6% in April, which was lower than expected and a five-year low. UK retail sales declined, although at a less than expected rate due to a boost from world cup kit sales.

Asian equity markets were buoyed by Indian election optimism, following the release of early policy decisions announced by the newly elected government. Indonesian markets ended lower with investors less confident on the results of the upcoming election. Chinese manufacturing data was announced higher than expected, showing expansion in the sector. Japanese equity market returns were strong over the month, with investors overlooking the consumption tax increase implemented in April. Japanese unemployment was announced at 3.5% in May, a sixteen-year low.

Emerging market equities ended the month higher, led by Latin America. The Brazilian government announced further stimulus measures to support the manufacturing sector. The Mexican central bank cut its interest rate to a record low of 3% and economic growth in Colombia was confirmed ahead of expectations. The Russian Federation Council revoked a resolution authorising military intervention in Ukraine at President Putin’s request. This led to a rally in equity and bond markets. Oil prices rose after forces in Iraq took control of a northern oil hub, restricting supply. Natural gas prices also escalated as Russia cut off supplies to Ukraine.

Fixed interest markets were mixed amid a period of varied central bank policy. German government bond yields ended lower largely due to a rate cut from the European Central Bank. US and UK government bond yields increased, in anticipation of interest rate rises sooner than expected.

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
19 Jun

Market Commentary June 2014


Global equity markets were strong over the month of May despite economic growth worldwide generally falling short of consensus. Various equity markets reached new highs over the month including the US and the UK, the latter surpassing its 14-year high. Indian equity markets broke through their all-time high following the success of the BPJ party, winning the Indian general election. The friction between Russia and Ukraine improved, as the Russian president expressed an interest in discussing a way out of the crisis. In fixed interest markets, government bond yields fell and corporate bonds also provided a positive total return.

US equity markets performed well over the month with the majority of gains in the second half, following comments from the US central bank suggesting monetary policy may remain looser for longer. US first quarter GDP second reading was announced at -1.0%, revised lower largely due to a greater than estimated decline in private inventories. Unemployment was announced at 6.3% in March, lower than the previous month’s figure of 6.7% and lower than expectations. Retail sales in April improved marginally, although lagged consensus forecasts due to falling sales across online retailers, appliances, electronics and furniture.

European equity markets were largely driven by the expectation that the central bank would shortly announce further monetary stimulus. Eurozone first quarter GDP was announced at 0.2%, lower than consensus expectations following flat economic growth in France and contraction in Italy. Inflation increased to 0.7% in April as package holidays, tobacco and electricity consumption drove the broader rate of inflation higher. Improved services data was offset by slower growth in manufacturing. Eurozone unemployment was announced at 11.8% in March, lower than consensus forecasts.

UK equity markets were positive over the month in a fairly inactive market period. UK first quarter GDP was announced at 0.8%, improving on last quarter’s growth figure but still trailing expectations. Interest rates were left unchanged at 0.5% and the quantitative easing program was maintained at the Bank of England’s May meeting. The rate of unemployment was announced at 6.8% in March, in line with forecasts and lower than 6.9% in the previous month.

Asian equity markets were supported by strong gains in the Indian equity market. The election result marked the first time in 30 years where India had a government with an overall majority. In China, the State Council set a range of market reforms to increase foreign investment, promote more efficient capital allocation and improve market transparency. Credit rating’s agency Standard & Poor’s upgraded the Philippine’s rating to investment grade status, having a positive impact on markets. Japanese first quarter GDP was announced at an annualised rate of 5.9%. This was considerably higher than expected, led by a significant increase in purchases, ahead of the upcoming increase in consumption tax. CPI inflation was confirmed at 2.7% in April, although the figure was nearer 1% when stripping out the increase in consumption tax.

Emerging market equities were positively impacted by the raft of positive news across Asia. Emerging Europe outperformed following improvements in Ukraine given Vladimir Putin’s announcement. In addition, Russia secured a $400bn deal to supply gas to China, the world’s leading energy user. Interest rates were cut in Turkey by 0.5% to 9.5% as well as a 0.10% rate cut in Hungary. Latin America underperformed the broader market as Brazilian GDP was announced at 0.2% in the first quarter, lower than forecasts.

Fixed interest markets produced broadly positive returns amid a period of disappointing economic growth announcements. The potential of prolonged monetary stimulus in the US was also supportive of the market. Bond yields fell across Europe adopting the view that the central bank would either reduce interest rates further, or extend the banks easing programme. Corporate bonds outperformed government bonds marginally over the month.

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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