Cat: CFM News
10 Jun

Market Commentary June 2013


Global equity markets surged through early May ending the month in positive territory despite pulling back in the second half. Several market indices made new five year highs during the month including the UK (FTSE 100) and Japan (Nikkei 225). In the US, the S&P 500 surpassed its all-time high. The declines in the second half were largely due to an increasing expectation that the US central bank may look to taper its quantitative easing programme on the back of improving economic data. Emerging markets ended the month in negative territory as investors again became concerned over China’s growth prospects.

US markets showed overall gains in the month initially supported by positive macroeconomic data. Cyclical sectors outperformed the broader market including financials, industrials and information technology. Employment data was strong as US non-farm payrolls increased by 165,000 in April, higher than the 140,000 expected. Payroll figures for February and March were also revised higher. In addition, US unemployment fell to a four-year low of 7.5%, which was marginally better than market expectations. Manufacturing data for April also exceeded forecasts. .

European markets also ended the month positively as financial and industrial sectors outperformed more defensive sectors. Telecoms in particular lagged the wider market. The European Central Bank cut its main interest rate to 0.50% from 0.75% as the Eurozone’s economy continues to struggle to pull out of recession. Unemployment rose to a record high of 12.2% in April, in line with market expectation. Youth unemployment remains a particular problem. Eurozone Q1 GDP growth was announced at -0.2%, higher than the -0.4% expected. Manufacturing data did come in higher than expected with peripheral countries showing some encouraging signs of improvement.

UK markets finished the month higher in line with global markets. The UK’s central bank governor upgraded his growth forecast for 2013 to 1.3% in his last set of quarterly economic forecasts before retirement. UK inflation (CPI) fell to 2.4% in April, lower than the 2.6% expected. Transportation costs, including fuel and air fares, were the largest detractors in the inflation measure. Unemployment fell to 7.8% in March, slightly lower than the 7.9% expected.

Asian markets fell slightly over the month with mixed economic data from individual countries. Higher yielding sectors, including financials, utilities, consumer staples and healthcare, outperformed. Australia was a notable under-performer reflecting its dependence on China. Australia’s central bank cut interest rates to a record low of 2.75%. The IMF trimmed this year’s growth forecast in China to 7.75% from 8%, while industrial production and retail sales also fell short of market expectations. Japanese markets entered a period of correction following the strong gains made year-to-date. Japanese Q1 GDP was announced at 3.5%, significantly higher than the 2.7% expected.

Emerging markets declined over the month as growth concerns in China saw further declines in some commodity prices. Emerging Asia was the best performing region, while Latin America saw markets lower. Brazil’s central bank raised interest rates to 8% from 7.5% while interest rates were cut in Turkey, Poland and Hungary. Ratings agency Fitch increased Mexico’s credit rating reflecting the policy commitments of the new administration. Commodity price changes were mixed with copper and aluminium increasing in response to supply disruptions being offset by falling oil prices (Brent crude) and gold.

Core government bond yields increased over the month leading to a decline in capital values and also broad losses in corporate bond markets. Market returns have been dominated by fears that central banks may begin to taper off quantitative easing programmes and therefore bond purchases by central banks will decline. Lower credit quality bonds generally outperformed higher quality such as government bonds and investment grade corporate bonds. Financials outperformed non-financials supported by the higher yielding market.

Cat: CFM News
15 Apr

Market Commentary April 2013


Global equity markets generally rose over the month continuing their series of gains year-to-date. Emerging markets underperformed developed markets led by an increasing US dollar and weaker commodity prices. Japanese equities posted strong gains as the Bank of Japan maintained their quantitative easing programme. Markets experienced a degree of volatility as issues in Cyprus concerned investors. Economic growth forecasts were revised lower in the UK by the OBR while in Europe macroeconomic data announcements were disappointing.

In the US, two of the regions leading stock market indices reached all-time highs as positive macroeconomic data continued. Defensive sectors including healthcare, utilities and consumer staples outperformed the broader market. Jobs data drove markets higher as US non-farm payrolls increased well ahead of the forecast rate. US unemployment also fell to a 4-year low of 7.7%. Retail sales were announced better than expected and US house prices continued to rise. US Q4 GDP was revised up to 0.4% as stronger construction activity and exports helped raise the previous reading.

European markets were volatile over the month as in Cyprus officials agreed a bank levy to help raise sufficient funds towards a bailout package. The news led to a mass withdrawal of cash from depositors. Healthcare proved the strongest performing sector while financials and basic materials underperformed the market. Credit ratings agency Fitch downgraded Italy’s credit rating one notch due to the country’s increased political uncertainty. Macroeconomic data was poor as industrial production fell higher than expected and unemployment reached a record high of 12%.

UK equities posted positive gains over the month as well as reaching five-year highs. The Bank of England agreed to maintain interest rates and made no changes to the current quantitative easing programme. Macroeconomic data announcements were mixed as the UK posted poor industrial production and manufacturing output figures which were offset to a degree by strong retail sales. The OBR reduced the UK’s 2013 growth forecast to 0.6%. Inflation nudged higher to 2.8% in February driven by rising gas, electricity and petrol prices.

Equity markets in Asia ended the month slightly lower as China, Hong Kong and Australia kept markets down. Japanese equity markets rose for their seventh consecutive month as aggressive monetary policy continues. Utilities, telecoms and financials were amongst the strongest performing sectors. The Japanese ‘Tankan’ survey revealed corporate sentiment improved over recent periods but at a rate slower than expected. Trading activity improved in China as exports almost doubled their forecast increase with growth of 21.8% y-on-y. Retail sales and industrial production also increased but at a rate less than expected. Inflation rose higher to 3.2%.

Emerging markets posted negative gains as countries within the emerging European region were negatively impacted by affairs in Cyprus. Turkey, Peru and Mexico outperformed on a regional basis. Healthcare, consumer staples and utilities were amongst the best performing sectors while materials underperformed the broader market. Turkey’s credit rating was raised one notch by ratings agency S&P while the Philippines were awarded investment grade status by ratings agency Fitch. Interest rates were cut to a record low of 4% in Mexico along with interest rate cuts in Poland, Hungary and Czech Republic.

In fixed interest markets, government bond yields fell over the month resulting in capital gains while financial sector and high yield debt underperformed the broader market. In the UK, government bond returns were marginally in line with investment grade corporate bonds. Government bond yields in both Germany and the US fell but at a lower rate than the UK. Debt issuance has proven strong over the first quarter with an estimated £108 billion new supply of investment grade debt and £21 billion of high yield debt.

Cat: CFM News
21 May

Market Commentary May 2013


Global equity markets climbed higher over the month of April encouraged by the prospects for further quantitative easing in developed world economies. Despite equity market gains, April proved a fairly negative month for macroeconomic data with many economic announcements missing consensus forecasts. In debt markets, credit sensitive bonds outperformed ‘safe-havens’ such as government bonds as investors continued to search for greater yield. The price of gold experienced its biggest daily fall in 30 years in April partly driven by poor macroeconomic data from China.

US equity markets reached a new all-time high in April with the best start to a year since 1998. Higher yielding sectors including telecoms, utilities and consumer staples outperformed while energy and industrials achieved negative returns. US Q1 GDP was announced at 2.5%, below the 3% expected. Increased consumer spending provided the largest upside in economic growth. US unemployment figures in March showed a fall to 7.6% from 7.7% while non-farm payrolls increased at a rate much lower than expected. US housing continued its recovery with new home sales increasing 1.5% in March.

European equity markets posted positive returns over the month. Southern-European countries including Italy, Spain and Portugal were the strongest performers. On a sector basis, financials, utilities and telecoms outperformed while materials, industrials and consumer staples lagged the broader market. Eurozone inflation was announced at 1.2%, below the 1.6% expected and considerably lower than the central banks target. Eurozone unemployment reached a new record high of 12.1%. In Italy Giorgio Napolitano was re-elected President following an undesired period of political uncertainty. German economic sentiment (measured by the ZEW index) fell lower than expected in April.

UK equity markets increased over the month following 11 consecutive months of positive returns. UK Q1 GDP was announced at 0.3%, above the 0.1% expected and narrowly avoiding recession. The UK services sector provided the greatest boost to GDP. UK CPI inflation remained unchanged at 2.8% in March. Rises in the cost of books, digital cameras and car insurance were offset by lower fuel costs. UK unemployment rose to 7.9%, higher than the 7.8% forecast. Credit ratings agency Fitch cut the UK’s credit rating one notch from AAA to AA+ due to a weaker economic and fiscal outlook.

Asian equity markets broadly ended the month higher with gains in Australia and India partly offset by losses in Korea and China. On a sector basis, higher yielding sectors such as telecoms, consumer staples and financials outperformed while materials and energy underperformed reflecting lower commodity prices. Chinese Q1 GDP was announced at 7.7%, lower than the 8% forecast which was encouraged by weaker factory output and consumption. Credit ratings agency Fitch cut China’s credit rating one notch from AA- to A+ due to a number of underlying structural weaknesses. Japanese equity markets surged following further Yen weakness and continued aggressive quantitative easing measures.

Emerging market equity markets posted positive returns boosted by Asia which was partly offset by Latin America. Healthcare, consumer staples and telecoms broadly outperformed while materials, industrials and energy lagged. Brazil’s central bank cut interest rates by 0.25% to 7.50% to help boost economic growth. Ratings agency S&P raised Columbia’s credit rating from BBB- to BBB. In Russia, unemployment and inflation both fell supporting economic expansion.

Within fixed interest markets, government bond yields broadly fell further and therefore investors would have experienced positive returns with 10 year UK, German and US government bonds falling to 1.69%, 1.22% and 1.67% respectively. Credit-sensitive bonds outperformed bonds with perceived safe haven status supporting investors search for higher yielding assets. The increased demand for riskier debt assets has pushed yields to new lows.

Cat: CFM News
08 Mar

Market Commentary March 2013


A number of global equity market indices reached five year highs towards the end of the month surpassing pre financial crisis heights. Europe topped headlines over the month following an inconclusive Italian election. The widely anticipated loss of the UK’s AAA rating finally arrived having an adverse effect on pound sterling. Markets were buoyed by improving economic data in the US and corporate earnings. Poor manufacturing data in China impacted equity markets while in Japan equity markets remained positive on the back of new policy leadership. Weaker commodity prices saw losses in emerging markets.

In the US, markets were supported by strong economic data particularly in housing. Gains were slightly offset towards month end as investors felt the Federal Reserve were likely to end quantitative easing. New home sales increased by 15.6% in January continuing the sectors positive trend. Consumer staples, telecoms, utilities and industrials all outperformed the broader market with materials underperforming. Consumer confidence increased in February for the first time in four months having a positive impact on markets. US Q4 GDP was confirmed at 0.1% according to the second data reading. This was revised higher than the 0.1% contraction originally recorded.

European equities recovered losses towards the end of the month from investor panic over Italian election uncertainty. Healthcare and industrials outperformed the broader market while telecoms underperformed. February saw a strong boost in German economic sentiment as the ZEW index increased to 48.2. Eurozone unemployment nudged higher to 11.9% in January and Q4 GDP was announced at -0.6%, below consensus forecasts. PMI fell to 47.3 in February indicating a contraction.

In the UK, credit rating agency Moody’s cut the country’s AAA rating to Aa1 over fears of rising government debt and slow economic growth. The announcement had an adverse effect on currency sending sterling to new lows against other major currencies. Equity markets finished the month in positive territory despite being negatively impacted by the results from the Italian election. UK Q4 GDP was announced at -0.3% according to the second data reading. This was unchanged from the quarter’s first reading. CPI inflation remained at 2.7% for the fourth consecutive month in January.

Asian equity markets gained over the month with mixed figures between countries. Indonesia and the Philippines generated strong gains while China and India underperformed. Chinese equities were largely impacted by manufacturing data which was announced below consensus expectation. Indian Q4 GDP was also weaker than expected. Japanese Q4 GDP was announced at -0.1%, also below consensus forecasts. Retail sales and industrial production surpassed consensus expectations over the month. Japanese equities marked their sixth month of consecutive gains as positive sentiment over new leadership continued.

Emerging markets fell over the month led by falls in emerging Europe including Hungary and Russia. The emerging Asia region provided some upside support with strong gains in Indonesia and the Philippines. Interest rates were cut across a number of central banks including a 0.25% cut in Poland to 3.75% and a 0.25% cut in Hungary to 5.25%. Inflation rose over a number of emerging economies including Russia and Brazil largely impacted by rising food prices. Domestic demand in Russia was supported by economic confidence and labour market conditions.

In fixed interest markets, returns were fairly consistent across the credit spectrum. Credit sensitive bonds outperformed at the beginning of the month. This was followed by a reverse trend towards month end as investors sought safety after no leader emerged from the Italian elections. Strong macroeconomic data proceeded from the US with mixed news in Europe. The 10-year gilt yield finished 0.12% lower over the month delivering investors a total return marginally below investment grade.