Cat: CFM News
14 Feb

Market Commentary February 2013

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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.

Cat: CFM News
12 Dec

Market Commentary December 2012

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Global equity markets were impacted by negative sentiment over the continued ‘fiscal cliff’ in the US. Markets gained traction mid-month as EU leaders agreed a deal on Greek debt. Eurozone unemployment rose higher over the month whilst services and manufacturing stabilised. In the US, Q3 GDP increased as well as UK consumer confidence. In China a new leader was elected which coincided with improving macroeconomic data. In Japan, equities were assisted by a weaker Yen which was partly affected by political events, in particular the leader of the opposition announcing plans for unlimited monetary stimulus ahead of elections. In emerging markets, equities in Taiwan and Philippines performed strongly, conversely Brazil underperformed following falls in the energy sector.

US equity markets finished the month in positive figures after a volatile period. In sector terms, consumer discretionary and industrials performed strongly while utilities and energy stocks declined over the month. Despite declining retail sales in the month of October, online sales increased 26% y-on-y to surpass $1bn for the first time in history. The Conference Board announced during the month that consumer confidence reached its highest level in five years. The US housing markets continued its upward trend, the recovery has spread to some of the hardest hit areas from the financial crisis. US Q3 GDP was announced at 2.7% surpassing the preliminary estimate of 2%.

In Europe equity markets continued to post positive gains for the sixth consecutive month. France posted the largest gains by region despite a credit rating downgrade by Moody’s to Aa1 (from AAA) Eurozone macroeconomic data confirmed PMI increased to 45.8 (from 45.7 in October). Unemployment reached a record high of 11.7% with great disparity between regions. CPI inflation fell to 2.2% (from 2.5%), the lowest rate since December 2010. This was primarily driven by lower energy prices.

UK equity markets were hesitant at the start of the month on the back of looming US fiscal cliff issues. Market finished the month positively following the IMF agreement over the Greek debt. Mark Carney was announced as new governor of the Bank of England set to take over in Summer-2013. UK Q3 GDP was confirmed at 1%, additionally consumer confidence reached an 18-month high. CPI inflation rose to 2.7%, the sharp rise in university tuition fees was a large contributing factor.

Asian equity markets ended the month higher following further signs of stabilisation in China and signs of resolution of various global issues. Chinese PMI reached 50.6 (from 50.2) while exports and industrial production continued to show signs of improvement. Japanese equity markets posted strong gains as the Yen weakened. Japan Q3 GDP contracted by 3.5% y-on-y. Retail sales improved despite consumer confidence remaining weak.

Global emerging equities gained over the month as Asian technology stocks led markets further. Taiwan, Philippines, India and Korea all posted strong gains while Indonesia and Malaysia recorded losses. Latin America struggled following declines in commodity and oil prices. In China a new leader of the Communist Party emerged. While in Russia a bill was signed requiring all state-owned companies to pay a minimum 25% of net income as dividend. Interest rates were cut in both Poland and Hungary as the latter faced a credit rating downgrade.

The risk-on rally continued through November as lower credit quality assets outperformed. US treasuries along with core government bonds rallied following elections in the US. Peripheral Eurozone bond markets also rallied as a further Greek stimulus package was agreed. In the UK financials outperformed non-financial holdings.

Cat: CFM News
16 Jan

Market Commentary January 2013

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Global equity markets rose higher over the month with double digit figures generated from Japanese equity markets. Disregarding US budget talks, investors were attracted by better than expected macroeconomic data from China. The newly elected Prime Minister, Shinzo Abe pledged to undertake more aggressive stimulus measures which boosted equity market returns and devalued the Japanese Yen. Risk appetite increased following an agreed deal in the US between President Obama and Congress avoiding the initial impact from the fiscal cliff.

In the US, equity markets experienced the highest rally on the last trading day of the year since 1974. US law-makers’ last-minute decision to avert the fiscal cliff boosted equity markets to end in positive territory over the month of December. While the initial impact on markets was positive, investors recognise that issues still remain over the country’s long term budget and debt ceiling. Financial and material sector stocks outperformed while consumer staples and telecoms underperformed. The US Federal Reserve announced plans to keep interest rates at historic lows until unemployment falls below 6.5% taking into account inflation.

European equities posted strong gains over the month as events in the US had a strong impact on markets. The region finished the year with strong gains as Eurozone risk perception reduced and corporate earnings downgrades stabilised. Industrials, financials and basic materials outperformed while oil & gas and telecoms underperformed broader market indices. German unemployment posted a 20-year low while in France unemployment reached a 15-year high. Ratings agency S&P surprised investors as they upgraded the credit rating of Greece by six notches, from CCC to B-. Italian equity markets fell initially as the Italian Prime Minister Mario Monti resigned. Markets later rallied following his announcement to lead a new coalition of centrist parties. Ireland posted third quarter GDP at 0.2% which was below the 0.6% consensus forecast.

In the UK, markets posted positive figures. The Chancellor confirmed new forecast GDP from the OBR which was revised down from previous estimates. Economic growth is forecast to fall by 0.1% in 2012 and rise by 1.2% in 2013. November retail sales growth increased 0.9% y-on-y, below market forecast. UK unemployment recorded its largest quarterly drop since 2001 as the number of people out of work fell by 82,000. CPI inflation remained unchanged at 2.7% in November. Rising figures from food and housing & household services were offset by falling motor fuels, furniture, household equipment & maintenance.

In Asia, China was one of the strongest performing regions following improving economic conditions. Chinese PMI posted positive figures as industrial production increased more strongly than expected at 10.1% y-on-y in November. India posted small gains and Taiwan lagged the broader index despite a pick-up in manufacturing. Japanese equity markets made strong gains as the newly elected Prime Minister advocated more aggressive monetary policy. The Yen weakened further supported by the Bank of Japan’s announcement to increase its asset purchase plan by ¥10 trillion.

Emerging market equities outperformed developed markets as risk appetite increased. Amongst the best performing regions were Europe, Middle East & Africa and Latin America. Russian president Putin announced he was fully committed to the country’s privatisation programme and infrastructure spending over the next eight years. Economic data in Brazil was mixed with low unemployment and strong retail sales alongside low industrial production and higher inflation.

Fixed interest markets continued their trend through December as more credit sensitive assets, including higher yield and peripheral Eurozone sovereign bonds, outperformed. US treasuries, German bunds and UK gilts underperformed the broader market. Subordinated financials posted strong gains with general financial holdings outperforming within investment grade sterling corporate bonds.

Cat: CFM News
05 Nov

Market Commentary November 2012

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Global equity markets remained reasonably flat as investor uncertainty was high due to the up and coming US elections. Political progress in the Eurozone boosted equity markets although macroeconomic data showed unemployment reaching record highs of 11.6% in September. In Asia, Japanese equities remained stable as the Bank of Japan extended its asset purchase programme. In bond markets, lower credit rated holdings outperformed over the month with Financials as the strongest sector. Government bond yields rose slightly.

In the US, poor earnings announcements detracted equity markets. Within sectors, financials and utilities posted positive gains while stocks within the technology sector experienced the highest detraction following disappointing corporate earnings. Macroeconomic data was positive over the month as US Q3 GDP posted 2.0% y-on-y (up from 1.3% Q2 GDP). In addition US retail sales and US house sales proved positive. Non-farm payroll data followed a drop in the unemployment rate. Jobless claims also reached the lowest levels in four years. As a result of Hurricane Sandy the New York Stock Exchange was forced to shutdown for two consecutive days although this had little impact on markets.

European equities rose for the fifth consecutive month. The financial sector drove the market higher while telecoms underperformed the broader market. Eurozone unemployment rose to a record high 11.6% (up from 11.5%). Labour markets in peripheral economies were the largest contributors to increasing unemployment. Annual headline inflation fell from 2.6% to 2.5% in October. Eurozone PMI (Purchasing Managers Index) fell to 45.8 (from 46.1) in October, its lowest level in over three years.

UK equities increased as a selection of companies made several encouraging announcements including positive dividend increases. UK Q3 GDP rose higher than expected increasing 1% quarter-on-quarter. UK unemployment fell to 7.9% (from 8.1%) as the number of people in work reached a record high of almost 30 million in the three months to August. CPI inflation fell to 2.2% in September (from 2.5%), its lowest level for almost three years.

Asian equities ended the month marginally higher as better than expected Chinese data supported the market. Chinese, Indonesian and Philippine markets were positive contributors while Korean and Taiwanese markets were detracted by poor returns from the technology sector. Chinese GDP reduced to 7.4% y-on-y (from 7.6%) however industrial production and exports marginally improved. Chinese PMI moved out of contraction increasing to 50.2 (from 49.8). Interest rates were cut in Korea, Australia, the Philippines and Thailand in order to boost economic growth. The Bank of Japan extended its asset purchasing programme by ¥11 trillion now reaching ¥66 trillion in total.

Emerging market equities failed to gain traction over uncertainty in corporate earnings and global growth. Emerging Europe displayed mixed figures with gains in Turkey and Hungary being offset by losses in Russia and Poland. In Latin America strength in Columbia was offset by weakness in Brazil and Chile. Brazilian interest rates were cut to an all-time low of 7.25% (from 7.5%) in attempt to encourage growth. Russia and South Africa dragged markets down with weaker oil prices affecting energy sector companies in both countries.

In fixed interest markets credit-sensitive bonds outperformed the broader market. Risk appetite was enhanced by political development in Europe. In addition to support from the European OMT (Open Market Transactions), bond markets were encouraged by relaxed terms on outstanding debts. The supply of corporate bonds was strong in the month of October with €26.8bn of investment grade and €4.6bn of high yield bonds issued. Core government bond yields increased marginally with the 10-year gilt yield reaching 1.85%. Following on from recent months, lower credit quality bonds outperformed the broader market. The financial sector displayed the strongest gains over the month.