Cat: CFM News
08 Mar

Market Commentary March 2013

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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
16 Jan

Market Commentary January 2013

Market-commentary

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
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.