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.

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
14 Feb

Market Commentary February 2013


Global equity markets increased over the month following a temporary resolution to the US ‘fiscal cliff’ combined with better than expected macroeconomic data in selective economies. Currency markets were active over the month as British Sterling and Japanese Yen fell while the Euro experienced strong gains. Commodity prices generally increased having a positive impact on emerging market equities.

US equity markets reached 5-year highs as the US budget was ratified temporarily and macroeconomic data remained supportive. Energy, healthcare and industrials were the best performing sectors, while IT, telecoms and utilities underperformed. Manufacturing data supported equity markets as ISM manufacturing reached a 1-year high. Conversely, consumer confidence surveys proved weaker than expected. US Q4 GDP figures shocked the consensus forecast as the measure was announced at -0.1% against the expectation of 1% over the quarter. A fall in government expenditure was the largest detractor. US unemployment increased to 7.9% from 7.8% in January.

Strong macroeconomic data in Europe supported equity markets over the month. Financials were the best performing sector while utilities lagged. Eurozone PMI reached an 11-month high of 47.9 in January highlighting contracting but improving manufacturing data. The Eurozone Economic Sentiment Indicator rose for the third consecutive month although regions varied with high numbers in Germany being offset by France, Greece and Portugal. The European Central Bank’s balance sheet contracted towards the end of the month as selective banks repaid a proportion of loans previously issued.

In the UK, equity markets experienced their best run over the month since 1989 led by the financial sector. UK markets picked up positive sentiment from US and European markets despite a contraction in Q4 GDP which was announced at -0.3%. Falls in oil/gas extraction and factory output were the largest detractors. A further contracting quarter would place the UK in a technical triple-dip recession. British Sterling fell over the month as investors worried about the safety of the country’s AAA rating. The ONS decided to keep the calculation of retail price inflation unchanged after consultation with the industry.

Asian equity markets experienced a positive month led by China and the Philippines as the financial sector outperformed. Taiwan and Korea lagged the broader market primarily due to falls in technology sector equity. Japanese equity markets made strong gains in local currency terms. Pharmaceutical, mining and financial sector stocks outperformed the broader market. Chinese Q4 GDP was announced at 7.9% halting the country’s seven consecutive quarters of slowing growth. The Reserve Bank of India cut interest rates to 7.75% while the Bank of Japan announced it would increase the inflation target to 2%. Further aggressive monetary policy was announced as the government approved a ¥10.3 trillion stimulus package.

Emerging market equities generally rose over the month with Latin America and emerging Asia posting strong gains while South Africa and the Czech Republic underperformed. Higher crude oil and iron ore prices supported emerging markets. Early debt repayments in developed Europe were matched by selective emerging Europe institutions as Hungary dispatched payments ahead of schedule to the International Monetary Fund.

Yields on core government bonds increased in January having an adverse effect on bond prices. Gilts, Bunds and Treasuries all fell over the month. The 10-year Gilt yield surpassed 2% for the first time since May 2012 as government bond demand reduced following positive news on the US fiscal cliff. Credit-sensitive corporate bonds continued to outperform the broader market. The Euro appreciated relative to other major currencies over the month, particularly relative to Sterling. Macroeconomic data was generally positive for developed markets enhancing equity market returns relative to fixed interest during the month of January.