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
05 Oct

Market Commentary October 2012

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Global equity markets rose over the month with the European Central Bank announcing a bond-purchasing programme and quantitative easing in the US enhancing investor sentiment. A ‘risk-on’ outlook to markets saw strong gains in global emerging markets and smaller companies relative to developed and broader markets. Macroeconomic data confirmed the Eurozone would remain in recession while positive employment figures were released in the UK and US. China announced another round of poor manufacturing and export data.

A third round of quantitative easing dominated the news in the US as the Federal Reserve announced it would inject an additional $40 billion into the US economy by purchasing US mortgage-backed securities. This had a positive impact on equity markets where defensive telecom and healthcare stocks outperformed. The utilities and technology sector underperformed the broader market. US Q2 GDP was revised down to 1.3% (from an estimated 1.7%) mainly due to the drought-related decline in farm inventories. US PMI dropped to 49.7 displaying the first sub-50 reading since September 2009 indicating contraction. US consumer confidence rose to a seven-month high as well as positive housing data revealing increases in existing home sales.

European equities rallied in response to the European Central Bank announcement to purchase short-dated sovereign bonds in peripheral Europe. Financials and basic materials outperformed over the month while the consumer services and consumer goods sectors underperformed the index. Eurozone PMI dropped to 45.9 (from 46.3 in August) and worse than expected figures were produced in the German ifo business survey. The French government unveiled its toughest budget in 30 years which will threaten the country’s annual growth rate.

In the UK ‘risk-on’ sentiment was enhanced by news from the US and Eurozone regions. Later in the month returns were pulled back following retracement in the mining sector on the back of disappointing data from China. Mixed news was shown from the retail sector as a wet summer impacted sales across multiple stores in the UK. Strong data was released from the services industry with the fastest growth expansion for over a year. CPI inflation fell back to 2.5% in August (from 2.6% in July) largely due to small rises in furniture and gas prices.

In Asia concerns remained around the outlook for Chinese growth with continued poor macroeconomic data announcements. Chinese PMI rose to 49.8 in September (from 49.2 in August) although was below consensus expectations. Indian equities were uplifted as the government announced a series of positive policy announcements including a boost in foreign direct investment and the disposal of government stakes in state-owned enterprises. Japanese equities lagged the broader market as concerns over economic growth continued. The Bank of Japan announced additional monetary stimulus by increasing its asset purchasing programme by ¥10 trillion.

Emerging markets rallied in the month of September with emerging market equities outperforming developed world equities. Emerging Asia was the strongest performing region following gains in India, Thailand and Taiwan. Gains in Europe translated through to emerging European regions with strong gains registered in Poland and Hungary while Latin America underperformed the index. Russian economic data confirmed higher living standards and a stronger labour market as disposable income rose above expectations and the unemployment rate declined to 5.2% in August.

In fixed interest markets core government bond yields rose as investors allocated away from safe-haven bonds. The 10-year gilt yield climbed to 1.73% and Treasury and Bund yields also increased. Higher credit quality underperformed lower credit quality with preference for risk in the fixed interest asset class. Financial sector bonds strongly outperformed the broader market reflecting the sectors sensitivity to policy development in the Eurozone.

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.

Cat: CFM News
04 Sep

Market Commentary September 2012

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The month saw a number of records in equity and bond markets. The S&P 500 reached an all-time high in US dollar TR terms and Apple became the most valuable company in history. Spanish 2-year bond yields fell to their lowest levels on hopes ECB intervention would curb borrowing costs. Chinese equity indices (Shanghai Composite) fell to its lowest level since 2009. In addition weak Japanese macroeconomic data dragged down Japanese equity indices over the month. In contrast, Latin American data proved buoyant with over one million jobs created year-to-date in Brazil which filtered through to equity returns. Gold bullion and silver showed strong gains in anticipation of further monetary stimulus.

US equities reached an all time high (S&P 500) with consumer discretionary and financial shares outperforming the broader market. In contrast, more defensive sectors such as utilities and telecoms lagged the index. US Q2 GDP was revised upwards to 1.7% (from estimated 1.5%) mainly reflecting gains in consumer spending. This was supported by better-than-expected unemployment and housing market data. US Fed Chairman Ben Bernanke signalled the Fed was ready to do more to support the US economy with some analysts speculating QE3 in mid-September.

European equities rose over the month on the expectation that the ECB would buy peripheral short-term bonds in attempt to lower borrowing costs. Financials in particular led markets higher while defensive sectors such as healthcare lagged the broader equity market. Eurozone Q2 GDP numbers were around expected values. August inflation data reversed its downward trend rising to 2.2% y-on-y. This was largely due to an increase in energy prices with certain food prices increasing sharply. Corporate earnings were reported largely in line with expectations.

In the UK trading volumes were at their lowest level for 10 years. Positive sentiment from Europe fed through to markets following Mario Draghi’s commitment to save the Euro. Some retrenchment was experienced towards the end of the month despite Ben Bernanke remaining open to using further quantitative easing. Inflation rose unexpectedly in July with CPI increasing to 2.6% (from 2.4% in June). The largest contributors were transport, clothing and footwear. Further upward pressure is expected from rising petrol and agricultural prices. Corporates saw poor results from mining companies with falling profits and increasing production costs while various pharmaceuticals experienced positive company specific news.

Asian equity markets lost ground as concerns over a slowing economy and declining external demand negatively impacted corporate earnings. Chinese PMI fell below 50 for the first time since November 2011 in August and industrial production decreased to 9.2% y-on-y in July. Chinese inflation stands at 1.8% y-on-y signalling the ability for monetary stimulus to be implemented by Chinese authorities. Japanese equities ended the month slightly lower. Early gains at the beginning of the month were brought back by concerns over economic growth.

Emerging market indices fell only slightly by the end of the month with the best performing sectors healthcare, energy and consumer discretionary. Materials, telecoms and industrials were among the weakest performing sectors. Emerging Europe experienced gains on growing hopes of an ECB intervention. Russian equities also rose as energy companies supported higher oil prices. A rise in emerging Asian equities in August lost momentum mainly impacted by weakness in China.

Fixed interest markets experienced an increase in risk appetite with narrowing credit spreads in corporate and sovereign debt. Core government bond yields were much the same over the month having reached historical lows in July. Sovereign debt yields rose initially signalling growing risk appetite however reversed by the end of August in growing anticipation of monetary easing. In addition, lower credit rated companies outperformed the broader fixed income market.