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
17 Jan

Market Commentary January 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 delivered strong returns in an end of year market rally. Much attention was drawn to the US central bank which announced it would start to reduce its monetary support of the US economy from January. The accompanying comments that policy will remain focused on keeping interest rates low for a long time to come saw equity markets react positively. Emerging market equities and fixed interest markets reacted negatively to the announcements. Macroeconomic data was mixed although economic growth and unemployment data were largely positive within developed economies.

US equity markets surpassed all-time highs over the month ending the year with strong market gains. The US Federal Reserve agreed to reduce its asset purchase programme by $10bn per month from January. The central bank added that interest rates are expected to stay close to zero for some time past when the unemployment rate falls to 6.5%. The US Congress reached agreement on the federal budget ensuring government funding for 2 years and targeting deficit reductions of up to $23 billion. The second reading of US third quarter GDP was announced at 3.6%, higher than the initial estimate. US unemployment was announced at 7% in November, its lowest level in 5 years.

European equity markets finished higher over the month with corporate earnings generally showing improvement. Eurozone third quarter GDP was announced at 0.1%, narrowly avoiding economic contraction. Manufacturing data was however positive in line with market expectations for expansion in the sector. The credit ratings agency Standard & Poor’s observed that the Eurozone’s outlook would be upgraded if planned structural reforms can be successfully implemented.

UK equity markets performed strongly in December, partly in response to positive sentiment in the US markets. The final reading of third quarter GDP was announced at 0.8% which was broadly in line with market consensus. Minutes from the Bank of England meeting highlighted some concern that further strengthening of the pound could hamper economic growth. The CPI inflation figure was announced at 2.1% for November. Food and utility prices provided the largest downward contribution which was partially offset by rises in the transport, recreation and culture sectors. UK unemployment was announced at 7.4%, the lowest level since April 2009.

Asian equity markets saw minor falls over the month as investors considered the consequences of the announcement of stimulus withdrawal in the US. Markets in Thailand and the Philippines lagged the broader market while India outperformed. In China, inter-bank lending rates experienced another strong spike amid concerns over bad debts and the fragility of the banking sector. Japanese markets experienced another strong month ending the year with substantial market gains. Positive returns were seen across every market sector over the month. Retail sales and industrial production data continue to suggest conditions are improving, although reported third quarter GDP growth was revised lower with a less optimistic outlook for business investment and a build-up of inventories.

Emerging market equities produced negative returns with those countries having current account deficits experiencing the greatest falls. In Turkey, a corruption scandal involving family members of cabinet ministers put further downward pressure on the domestic market. In Mexico, government reforms aimed at tackling oil monopolisation provided markets with a boost. The country also received a credit rating upgrade by Standard & Poor’s. Russian equity markets were positive over the month encouraged by strong labour data and real wage growth.

In fixed interest markets, core government bond yields rose leading to negative total returns over the month. Lower credit quality bonds outperformed as a result of both their higher income yield and the tightening of credit spreads. The announcement of stimulus withdrawal in the US placed downward pressure on government bond prices with the rate of monthly bond purchases set to decrease from January.

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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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Cat: CFM News
18 Dec

Market Commentary December 2013

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 were broadly positive over the month with developed markets supported by the announcement of the new Federal Reserve Chair, Janet Yellen, whose comments supported continued monetary stimulus. Emerging markets produced negative returns adopting a more uncertain approach to withdrawal of stimulus in the US. Fixed interest market returns varied, with rising yields within core government bonds and tightening spreads, particularly within lower credit quality holdings.

US equity market indices surpassed all-time highs towards the end of the month, where more economically sensitive sectors outperformed. US Q3 GDP was announced at 2.8%, well ahead of consensus forecasts. The rise was largely attributable to businesses building-up inventory. US unemployment increased to 7.3% from 7.2%, largely as a result of the recent US government shutdown. US housing data was positive with further house price rises and increased construction activity.

European equity markets ended higher encouraged by an interest rate cut. The European Central Bank announced a cut in interest rate to 0.25% from 0.50% in order to combat deflation. The decision was following lower than expected CPI inflation figures at 0.7% for October. Eurozone Q3 GDP was announced at 0.1% in line with expectations. Eurozone unemployment was announced at 12.1% in October, falling from 12.2%. Credit ratings agency Standard & Poor’s, downgraded France’s credit rating one notch to AA on the back of weak economic growth, high unemployment and constraints on government spending. Conversely, Spain’s credit status was upgraded from negative to stable.

UK equity markets finished marginally lower over the month. UK Q3 GDP was announced at 0.8% marking the fastest rate of expansion in 3 years. The Bank of England announced the Funding for Lending scheme would end 1 year earlier than planned, on the basis that additional stimulus for lending to households would no longer be required. UK unemployment was announced at 7.6% with the Bank of England suggesting the 7% target could be met as soon as Q3 in 2015. Therefore interest rates could rise earlier than previously suggested. UK CPI inflation was announced at 2.2% in October, falling from 2.7%. The fall was attributable to reduced motor fuel prices and tuition fees.

Asian equity market returns were mixed with gains in China and ASEAN markets lagging the broader market. The Chinese government announced a number of reforms collectively known as the ‘third plenum’. Briefly the reforms aim to improve competition of state companies, reduce government intervention and abolish the one child rule. Several ASEAN markets suffered due to the typhoon in the Philippines, political unrest in Thailand and macroeconomic uncertainty in Indonesia. Japanese equity markets approached 6-year highs following further yen weakness. Japanese Q3 GDP was estimated at 1.9%, significantly lower than the previous two quarters of economic growth.

Emerging market equities decreased over the month with Latin America experiencing the greatest downside. Mexico was the strongest performing country within Latin America latching on to US economic growth. In Brazil, positive consumer confidence and unemployment data were combined with weak industrial production. Brazilian interest rates in were increased to 10% from 9.5% while rates were cut in Chile and Peru. A deal was made between Iran and P5 nations on its nuclear activities, which lifted trade sanctions for oil exports. This placed downward pressure on oil prices. Russian equity markets were forced lower encouraged by energy sector underperformance.

In fixed interest markets, core government bond yields rose leading to negative total returns over the month. Investment grade spreads remained largely unchanged except for tightening spreads within lower credit quality holdings. This produced a positive total return after the income yield. Market data shows high yield bond demand has been matched with fairly buoyant issuance of late.

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