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6. January 2017 17:36
by Irene
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December 2016 - Market Commentary

6. January 2017 17:36 by Irene | 0 Comments

In a year driven by market events, the month of December didn’t disappoint as the investment community had to contend with the second Fed hike since the Global Financial Crisis of 2008, potentially destabilising elections/referendums in Austria and Italy and the on-going soap opera as President Elect Donald Trump used his Twitter account to front run future government policy as he prepares to move into The White House.

United Kingdom

After what had been a dreadful two months for the bond markets across the globe, December finally showed some respite and none more so in the UK where both the Gilts and Index-Linked Gilts performed well returning 1.8% and 3.7% respectively. With the rebound in the equity markets, with a particularly good showing in the Financial and Energy sectors, the FTSE 100 delivered a total return in performance in excess of 5% for the month. Who would have imagined that Trump’s Twitter comments about what he thought about traditional forms of energy could impact the UK stock market so directly? Welcome to Geo-Politics 2017 style!

Europe

A carefully managed announcement about trimming back QE from Mario Draghi, the President of the ECB, avoided a repeat of the now infamous Taper Tantrum and as a result the European Bond markets saw very little disruption. This coupled with the fact that after the impact of the Brexit and US Presidential election votes (where basically many of the worst outcomes had been priced into the equities market) resulted in December being a good month for many European investors. With a strengthening of the Euro relative to Sterling, in GBP MSCI’s Europe Index delivered a total return of 6.7%. <

United States

As we look back over the month to what happened in the US markets, one is reminded of what in the past was described as ‘Irrational Exuberance’, as the equity markets only looked in one direction. Of particular note was the continued ascendency of the Russell 2000 Index, the S&P 500 Index and the Dow Jones Index as it challenged that all so important physiological barrier of crossing the 20,000 level.

Fixed Income

Currency wise GBP lost some ground to all the leading currencies, USD, EUR & JPY, depreciating 2%, 1% and 0.2% respectively. While good for those investors with exposure to assets denominated in these currencies, it has however ratcheted up the likelihood of the UK suffering an increased bout of inflation. We say, watch this space, as this may be the key driver of UK economic behaviour in the year ahead.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 31 Dec 2016, all returns in GBP.

5. December 2016 16:39
by Irene
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November 2016 - Market Commentary

5. December 2016 16:39 by Irene | 0 Comments

Another surprise, this time coming from the United States with the presidential election of Donald Trump that will have astonished many. US equities gained, but so did Sterling, which was up 2.3% for the month of November, not helping Dollar investments for a Sterling denominated investor. With Trump promising to invest in infrastructure and tax cuts this should help boost domestic growth in the US, the Russell 2000 Index saw an exceptional return for Mid Cap equities which was up 11.5%.

United Kingdom

Brexit had a little speed bump with the UK High Court ruling that the government must seek parliamentary approval before triggering Article 50 to start the Brexit process. This strengthened Sterling, together with the Autumn statement, which saw infrastructure being boosted, and thus hoping to increase UK GDP growth. The increase in Sterling and the potential GDP growth did not help equity markets though, with the FTSE 100 being down -2.0% for the month, although the FTSE 250 was essentially flat for the month.

Europe

The Eurozone has had more political uncertainty with the referendum in Italy in early December and elections coming up in 2017 in France and Germany. France already surprised with the favourite candidate, Alain Juppe, losing to Francois Fillon as the Republican candidate. From an economic point of view though, the Eurozone points to ongoing expansion with the Purchasing Managers’ Index (PMI) and consumer confidence up. <

United States

With new emphasis in the United States on fiscal over monetary stimulus, expectations of inflation increased which helped specifically mid and small cap companies which are more US centric. The Dollar increased, by 3.4% against the Euro, also helped by a nearly certain rate hike in December by the Federal Reserve.

Asia and Emerging Markets

The clear losers of the Donald Trump election and the subsequent increase in the Dollar were Emerging Markets with fear of adverse US foreign policy and potentially protectionist trade measures. The hardest hit were Mexico and Brazil, dropping -14.7% and -13.2% in GBP respectively. In Japan, equities rallied with the Nikkei 225 up 5.1%, but with the US Dollar rallying and the interest rate differential between the US and Japan widening, the Yen on the other hand lost -8.3% against the Dollar.

Fixed Income

The Trump election saw a regime shift in fixed income markets. As monetary policies move from quantitative easing to infrastructure spending and tax cuts, this is not as generous for yield curves and brings expectations of higher inflation. The result was an increase in yields, especially at the longer end, more or less across the board. The hardest hit were Emerging Markets bonds, where there was additional pressure due to the strengthening of the US Dollar.

Commodities

Commodities mostly had a good month, helped by an agreement by OPEC to cut production, which saw Crude Oil rise by 7.2% in USD. Gold on the other hand lost -8.0% in USD, also facing headwinds from a stronger Dollar.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 30 Nov 2016, all returns in GBP.

4. November 2016 16:24
by Irene
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October 2016 - Market Commentary

4. November 2016 16:24 by Irene | 0 Comments

Brexit was felt in the month of October with Sterling falling another -5.6%, which takes it to -17.7% since the referendum against the US Dollar. For a Sterling domiciled investor, the drop in Sterling helped securities in other currencies. The global economy picked up some steam in October, with the global purchasing managers’ index rising to 51.9, showing expansion, although this did not feed through to equities markets, with the Dow Jones Industrial Average posting a loss of -0.8%.

United Kingdom

At the beginning of October Prime Minister Theresa May announced that she will trigger Article 50 by the end of March 2017, resulting in Sterling falling to new lows, and in turn helping the more export centric FTSE 100 increasing by 1.0%. The drop in Sterling is slowly feeding through to inflation, made publicly aware by the Marmite spat between Unilever and Tesco over who should absorb the additional costs of imported goods. The question is how far inflation will go.

Europe

The European Central Bank (ECB) kept monetary policy unchanged and suggested that it would decide in December whether it will extend its quantitative easing program beyond March 2017. October was a quiet month for the major European stock markets with German and French markets rising by 1% in EUR. The big outperformers were European Banks, gaining 9% after the risk of default by Deutsche Bank somewhat faded during October.

United States

The election in the United States has heated up even more. As the polls are too tight to call, US equities fell over the month with the S&P 500 recording a loss of 1.8% amid the uncertainty. The macro-economic signals were mixed, with GDP estimates showing US growth picking up, led by consumption and exports. On the other hand, the core consumer price index slowed to 2.2% in the 12 months ending September and non-farm payrolls eased slightly in September. All eyes will be on the outcome of the election in November, with a rate rise in December being priced in at above 70% as at the end of October.

Asia and Emerging Markets

The increasing consensus of a Fed rate hike in December meant that Emerging Markets equities gained only marginally. An outperformer was Brazil’s Bovespa index, which returned 14% in local currency benefiting from improved political developments. Japanese equities rose consistently during October to register a total return of 5.3% for the month, helped by a weakening yen.

Fixed Income

October was a tough market for fixed income with government bond yields rising nearly across the board. UK gilts lost -3.9% while inflation-linked gilts returned -0.6% with inflation slowly feeding through to the consumer from the aftermath of the referendum. Emerging Markets bonds lost as well, both for USD-denominated debt as well as for local debt.

Commodities

There were different headlines over the time of October from OPEC whether it will be able to agree on a production freeze or not, resulting in higher volatility for oil with WTI Crude Oil losing -3.1% in USD for the month. Although there was heightened uncertainty in markets, gold lost 3% in USD for the month amid the higher expectations of a rate rise.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 31 Oct 2016, all returns in GBP.

5. October 2016 15:57
by Irene
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September 2016 - Market Commentary

5. October 2016 15:57 by Irene | 0 Comments

Markets were fairly calm in September as another month has gone by with the Federal Reserve not raising rates, providing some short term volatility which then melted away when the Fed reported that there would be no change in September. This is in contrast to the four rate rises expected for this year at the beginning of the year.

United Kingdom

The FTSE 100 still continued its post Brexit run. There is no additional QE in sight for the UK at the moment, but the fall of Sterling (12.4% since Brexit) has definitely helped UK stocks, especially in the more export focused FTSE 100 index. From a macro-economic point of view the UK did well too, with a slight fall in unemployment, an increase in consumer confidence and the PMI manufacturing index at 55.4, up from 53.4 in August, and definitely in expansion territory.

Europe

There was more volatility in Eurozone markets, with concerns focusing around the banking sector. German and Italian banks were the hardest hit. The Euro Stoxx 50 is down -0.6% in local currency (1.4% in GBP) while the Euro Stoxx Banks index is down -3.8% (-1.9% in GBP). The manufacturing PMI for the Eurozone is up, with six of the eight countries in expansion territory, amongst them Germany, where manufacturing and business confidence is up. <

United States

Everything was calm in US markets until we got closer to the Federal Reserve meeting and there was speculation of a rate rise for this year, potentially in September. After the Fed opted to maintain its current policy, calm was restored and equity markets regained their earlier losses, with the S&P 500 finishing flat for the month. Macro-economic signals are good, albeit modest, with consumer confidence, payrolls and house prices up.

Asia and Emerging Markets

The speculation about a September rate hike in the US caused a reversal in emerging markets equities, giving back some of the gains earlier in the year. An increase in US rates makes emerging markets assets less attractive to investors seeking yield. In addition, a rate hike tends to strengthen the US dollar, which can cause problems to emerging market countries and companies holding a substantial amount of their debt in US dollar and potentially slowing the economic growth. The Bank of Japan changed its tack in QE now targeting to push inflation to 2%. This can be seen as a new way of QE as the ‘old QE’ of reducing rates and purchasing assets is getting less effective.

Fixed Income

In bond space, government bonds were mainly negative, (UK gilts returned -2.4%), while inflation-linked bonds were around flat in local currencies. In the higher yield end, the best performers were emerging markets local currency bonds, with the iShares EM Local government bond ETF returning 1.4% in USD (2.7% in GBP).

Commodities

There is hope that the OPEC meeting will result in a production freeze, which helped oil with WTI Crude being up 6.1%. Gold was up 1% in USD which did help gold miners, with the S&P Commodity Producers Gold Index up 4.2%.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 30 Sep 2016, all returns in GBP.

5. September 2016 10:55
by Irene
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August 2016 - Market Commentary

5. September 2016 10:55 by Irene | 0 Comments

We have finally fallen into the summer slump in August. Markets rallied nicely until about mid-August, helped by the Bank of England’s Quantitative Easing and the US Federal Reserve not increasing rates in July. Towards the end of the month there was more talk about the US Fed potentially raising rates in September, which did not help equities in general and Emerging Markets in particular.

United Kingdom

The FTSE 100 continued its post Brexit run, helped by the rate cut and QE, and returned 2.0% for the month. This was also helped by positive economic data, which has not succumbed yet to the Brexit fear, with retail sales up and unemployment down.

Europe

Eurozone Banks bounced back for another month at 6.7% in EUR (7.4% in GBP) although year-to-date they are still down 22% in EUR (9.8% in GBP). The European Central Bank did not add any more easing in August, but most of the macro-economic data for the Eurozone nonetheless showed resilience to the UK's Brexit vote and the Euro Stoxx 50 added another 1.2% in EUR (1.8% in GBP).

United States

Given that there was a lot of ‘will they or won’t they’ talk about the possibility of a US Federal Reserve rate hike, it is surprising that US equities saw the fourth narrowest August trading range since 1928 and ended up flat for the month at 0.1% in USD. The macro-economic data is positive on a whole, which has increased the implied probability of a rate hike before the end of the year to around 60%.

Asia and Emerging Markets

Emerging Markets equities were the winner for this month, returning 2.5% in USD (3.2% in GBP) with China the best, returning 4.1% in GBP for the CSI A-shares index. President Rousseff was finally impeached from government and Brazil’s Bovespa returned 1.0% in local currency (2.0% in GBP).

Fixed Income

The Quantitative Easing by the Bank of England further helped UK bonds. Inflation-linked bonds were the clear winners returning 9.3% for the month, with an expectation from pundits of higher inflation to come. UK government bonds, up 3.0%, didn’t fair too badly either.

Commodities

While most commodities faired quite badly for the month (wheat down 12% in USD and gold down 3%), speculation that an informal OPEC meeting next month might mean an agreement to a potential production freeze helped WTI Crude Oil to a gain of 7%. As gold sold off, so did the S&P Commodity Producers Gold Net Total Return Index which was down 16.2% for the month in GBP.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 31 Aug 2016, all returns in GBP.

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