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5. August 2016 20:22
by Irene
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July 2016 - Market Commentary

5. August 2016 20:22 by Irene | 0 Comments

We might have been looking forward to a quiet summer, but markets did not provide the calm. We started the month in a country without a leader and with a quick turn of events saw Theresa May become the new prime minister of the UK. Much of the general rebound in the UK and elsewhere can be attributed to the renewed hopes of central bank quantitative easing. In the case of the Bank of England and the European Central Bank, expectations are high for further easing despite remaining on the sidelines in July and waiting for the post-Brexit data first. This helped equity markets, which in July bounced back from the initial post-Brexit fallout, and also fixed income, with government and corporate bonds both gaining in the UK and the Eurozone.

United Kingdom

UK equities extended their gains following the vote on Brexit, as investors further anticipated the beneficial impact of a weakened currency for a predominately overseas earnings base within the FTSE 100, which gained 4.4% for the month. The Bank of England did not cut interest rates, but Mark Carney signalled that quantitative easing will definitely be on the horizon. The new Chancellor of the Exchequer, Philip Hammond, stressed that austerity should come second in his opinion while one needs to look at the economic consequences of the referendum. The FTSE 250 regained nearly all of its losses after Brexit, returning 6.2% for the month.

Europe

There was mixed economic data from the Eurozone. The Purchasing Managers Index (PMI) for Germany stood at 53.8, which helped bring the overall Eurozone PMI number in at 52.0, both well above contraction territory and suggesting resilience despite the Brexit vote. This along with a positive start to the second quarter earnings season helped European equities register positive returns in July. The not so good news for the Eurozone were banks and in particular Italian banks. Most banks weathered the stress tests, but Italian Monte dei Paschi de Siena would be wiped out under the stress test scenarios. It is now looking for a rescue package. The Euro STOXX Banks index recovered from the Brexit fallout and gained 9.0% for the month of July (10.2% in GBP), but is still down -11.7% since Brexit (2.9% in GBP).

United States

The US is still on its steady as she goes path. Economic data was mixed in a month which began with much better than expected non-farm payrolls, but ended with disappointing second-quarter GDP data. The Federal Reserve kept its interest rates on hold as was expected by markets and economists. US equities ended July higher with the S&P 500 ahead by 3.7% in USD, achieving new all-time highs.

Asia and Emerging Markets

Boosted by the Fed holding its interest rates steady, Emerging Markets equities and bonds performed strongly over the month. The top performing country within Emerging Markets was Brazil, where the Bovespa index returned 11.2% in its local currency, the Brazilian Real, (9.6% in GBP). The Bank of Japan disappointed with only limited expansion of the asset purchase programme and no further cuts in interest rates. A strengthening of the jobs market and increased industrial production has seen the Japanese stock market, the TOPIX, recover from its June sell-off, rising 6.2% in July in JPY.

Fixed Income

Bond markets rallied on the back of hope of further quantitative easing both from the BoE, ECB, and the BoJ. Corporate bonds were also largely positive on both sides of the pond and for both investment-grade and high yield. Although we saw significant increases in equity markets around most of the world, a sign of the potential slowdown in markets is the fall in oil, which dropped 15.1% to $41.6 per barrel.

Market Returns Overview



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

4. July 2016 16:19
by Irene
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June 2016 - Market Commentary

4. July 2016 16:19 by Irene | 0 Comments

Many people may have hoped that June would be a quiet month, relaxing with a glass of beer or wine, watching the Euro 2016 football, or enjoying the British weather during either Queen’s or Wimbledon tennis. Unfortunately this did not turn out to be the case, with the UK referendum resulting in a somewhat unexpected victory for the ‘Leave’ campaign sending global markets into turmoil. The brief result has been that stock markets have, in most cases, fallen sharply, bond markets have rallied with yields reaching new, even lower levels, and the UK and European currencies fell as investors rushed into both the US Dollar and Japanese Yen.

United Kingdom

Extensive prose has already been written about the referendum, and the likely effects for the UK’s standing in both Europe and the world are being considered at a rapid pace. One thing is for sure, markets do not like uncertainty and at the moment the UK seems to be in a vacuum: both the government (Conservatives) and opposition (Labour) are rudderless, and the effects on the economy of the eventual Brexit are difficult to assess as the process of the ‘divorce’ from Europe is yet to begin. The immediate effects have been that bond markets have rallied with UK 10 year yields falling to below 1% for the first time ever, as cuts in interest rates by the Bank of England become highly probable. Stock markets have fallen, but the FTSE 100 has been cushioned from some of the fall as energy stocks such as BP and Shell have in fact rallied. On the other hand, shares in financial firms such as RBS and L&G have fallen sharply as a UK outside of Europe means a much tougher business environment for them. By month end the FTSE 100 was showing a comfortable 4.7% gain for the month of June, whereas the FTSE 250 was down -5% and Sterling was down -8.1% against US Dollar.

Europe

The UK’s vote to leave the European Union has, not surprisingly, dominated the news in Europe. Stock markets across Europe fell on concerns that the UK leaving could destabilise the EU. Bonds also continued to rally, with German 10 year bond yields touching an all-time low level of negative -0.17%. There was a general election in Spain the weekend after the UK’s referendum, but the results were relatively uneventful with the Conservative People’s Party winning most seats, although not reaching a majority.

United States

Not even the US was immune from the effects of Brexit, with US stocks falling sharply at first, but then recovering all of the losses by month end, and US Treasury yields also fell as the contagion spread around the world.

Asia and Emerging Markets

Emerging Markets equities and bonds performed strongly over the month, boosted by stronger oil as well as other commodity producers. As central banks are more likely to be cutting rates rather than hiking, this is seen as a positive for Emerging Markets, especially with the Fed no longer looking like it will be raising rates anytime soon.

Fixed Income

As mentioned above, bond markets rallied on the back of the UK referendum’s result, with expectations that the Bank of England will very soon cut interest rates, but also that a knock-on effect could be a global slowdown and potentially recession in several major economies. An additional indicator of just what is happening can be seen from the reaction of gold over the month. Gold is up nearly 9% over the month, whereas the reference iShares Gold Producers ETF is up over 33%. The historical concern about investing in gold used to be that it has a negative yield, i.e. an owner has to pay to store it – and it does not pay any dividends. However, in a world where negative interest rates are becoming more usual, this is no longer a deterrent to investing.

Market Returns Overview



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

6. June 2016 08:12
by Irene
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May 2016 - Market Commentary

6. June 2016 08:12 by Irene | 0 Comments

The past month has mainly been characterised by what might happen in the next month. Increased talk that the US could raise interest rates, and the upcoming referendum on June 23rd on whether the UK will remain or leave the European Union have become major factors in the day to day markets. During most of May, the pound strengthened against both the US dollar and euro, although it then reversed most of this on the final day of the month on concerns that the referendum is going to be closely fought. And in the US, the prospect of a second interest rate rise following December’s hike has been overshadowing the markets. Recall that the interest rate hike six months ago (from 0.25% to 0.50%) was the first since rates were slashed back in 2008 at the height of the credit crisis. And in the weeks immediately after that hike markets were exceptionally volatile.

United Kingdom

The UK equity market managed a small increase during May, as the focus on a potential Brexit affected the currency and bond markets more directly. The oil price continued its recovery, reaching close to $50 a barrel. With many oil related stocks in the FTSE 100, the higher oil price has had an overall beneficial effect on the market, despite there being a negative economic effect from a higher oil price (which increases most other costs).

Europe

Within Europe, the Greek stock market performed exceptionally well on progress with the bailout agreed some time ago, whereas the Italian market was relatively weak, mainly driven by the domestic banking sector. Inflation in Europe is hovering at close to zero despite the Central Bank’s 2% target. Hence the benchmark interest rate remains at 0%, and the deposit rate is at minus 0.4%.

United States

With Donald Trump becoming the presumptive Republican candidate, and Hilary Clinton almost certain to be his opponent, many will be closely watching developments in the coming months. However, neither is currently seen as being a major disrupter to the equity and bond markets, although this may change as their policies become clearer.

Asia and Emerging Markets

Emerging markets suffered during May on concerns over how much a hike in US interest rates will affect them. The MSCI Emerging Markets index was down -3.7% in USD (-3.0% in GBP), and Brazil continues to be weak, falling 10% during the month, with their currency down a further 5%.

Fixed Income

With markets being extremely volatile since the first US Fed hike in December, and with the overall levels of debt in the global economy remaining stubbornly high, the Fed has been much more cautious than originally feared. As a result of the speculation over higher interest rates, shorter maturity bond yields increased slightly in May. Elsewhere there is no sign of any imminent interest rate rises, with Mark Carney, the Governor of the Bank of England, going as far as saying that if the referendum votes to leave, interest rates will have to be cut. In Europe, continued weak economic data point to the European Central Bank continuing their quantitative stimulus with bond yields remaining at extremely low levels.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 31 May2016, all returns in GBP.

5. May 2016 21:19
by Irene
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April 2016 - Market Commentary

5. May 2016 21:19 by Irene | 0 Comments

After the volatile start to the year in markets, the April showers were fairly subdued. Central banks were meeting in most of the important economies, but most kept their economic policies unchanged, which was expected for Europe, the US and the UK, but did surprise investors with Japan, which resulted in a sharp rise in the yen. Brexit fears started to heat up at the beginning of the month, but the visit from President Obama and his stance of Britain being much worse off outside of Europe, meant that the fear of Brexit eased somewhat and resulted in Sterling strengthening against other currencies. Developed markets were flat in GBP (1.6% in USD) while Emerging Markets lost -1.0% in GBP (0.6% in USD).

United Kingdom

Apart from Brexit fears, the headlines for the UK were the introduction of the National Living Wage, the sale of the Tata steelwork plant in Port Talbot and retailer BHS going into administration. UK GDP growth slowed to 0.4% in the first quarter of 2016, down from 0.6% in the final three months of 2015, as the economic momentum seems to be fading, with the Services sector the main driver of growth now. Nonetheless, UK equities rose in April, led by the large-cap resources sector as commodity prices continued to rise with the FTSE 100 Index returning 1.4% for the month.

Europe

The European Central Bank met in April, reaffirming the improvements in the Eurozone and more details on Euro corporate bond buying. Eurozone equities notched up gains in April with the MSCI EMU index returning 1.4% in EUR (0.3% in GBP). Macro-economic data for the Eurozone was fairly encouraging with GDP up 0.6% for the first quarter of 2016, up from 0.3% for the final three months of 2015 and the flash composite purchasing managers’ index for April showing ongoing expansion with a reading of 53.0, although slowing slightly from a 53.1 reading in March. Unemployment for the Euro area came in at 10.2% in March, down from 10.4% in February.

United States

The Federal Reserve meeting and subsequent press release revealed a more dovish stance, with the committee referring to downside inflation risks and keeping policy on hold as expected. A weaker GDP reading at 0.5%, which showed that the US grew at its slowest pace in two years, and a revenue shortfall at Apple has kept the Dollar under pressure. Perhaps not surprisingly, the S&P 500 returned 0.4% for the month (-1.2% in GBP) while the Nasdaq 100 was down -3.1% (-4.7% in GBP).

Asia and Emerging Markets

A weaker Dollar and an upward momentum in commodities helped Emerging Markets, returning 0.6% in USD in April (-1.0% in GBP), underperforming Developed Markets as mentioned above. The best performing country was Brazil, returning 7.7% in Brazilian Real (9.4% in GBP) with markets reacting positively to the latest political developments and the rise in commodity prices.

Fixed Income

Government bond rates were up for Bunds, Gilts, and Treasuries with returns in the range of 0% to 1% while returns for credit markets were all positive, with the lower end of the quality spectrum relatively outperforming, with US High Yield bonds gaining 3.0% and Euro High Yield bonds gaining 1.7%, each in their local currencies. The rebound in the oil price and the weakening of the Dollar last month has resulted in Emerging Markets bonds gaining around 2% for the month in USD, while being approximately flat in GBP.

Market Returns Overview



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

5. April 2016 21:13
by Irene
0 Comments

March 2016 - Market Commentary

5. April 2016 21:13 by Irene | 0 Comments

With central banks trying to prop up economies and inflation outlooks, equity markets saw a rebound for the month of March. From a macro-economic point of view, not that much has changed. The question is where will the strategies of Central Banks head? The European Central Bank is accelerating their bond-buying program, China is adding more stimulus to the markets, and the US seems to favour a go-slow policy for interest rate hikes. Oil also saw a notable rebound, with WTI Crude rallying nearly 14% during the month from the low $30s to closer to $38, helped by rising supply cut expectations.

United Kingdom

The FTSE 100 was at the lower end of gains at 1.8% as the UK’s economic outlook is subdued by the fear of Brexit. The growth of the economy is more consumer lead with manufacturing contributing only a small part.

Europe

Mario Draghi finally delivered on his promise of ‘whatever it takes’. The European Central Bank is extending its asset purchasing program at a rate that equals Bill Gates’ fortune, declared as the world’s richest man, each month. The Euro dropped briefly against Sterling after the announcement, but has since reversed again and is up 1.4% against Sterling for the month of March. Eurozone equities did fairly well, gaining 2.1% in EUR (3.5% in GBP).

United States

In the United States, the S&P 500 returned +7%, nudging back into positive territory for the year. All eyes were on the Fed in March, which did not disappoint; rates were left unchanged, the Federal Open Market Committee reduced its policy rate forward guidance, and Fed Chair Yellen gave a more dovish speech at the end of the month. The latest stance has been interpreted as an easing in its economic policy, resulting in a rallying stock market and a weaker Dollar. Business surveys have started to improve and the manufacturing output has stabilized, which suggests that growth might be picking up again.

Asia and Emerging Markets

Emerging Markets were the clear winners of all the central bank easing with Emerging Markets equities (MSCI Emerging Markets) gaining 13.2% in USD (10.1% in GBP). A weaker Dollar and a strengthening in some commodities helped the sector overall. Brazilian equities returned the most at 17% in local currency with the hope of an improvement of the domestic political situation. Chinese equities were not far behind, returning 11.8% (Shanghai Shenzhen Composite Index), clearly helped by the People’s Bank of China (PBOC) cutting its bank deposit reserve rate requirement to boost lending.

Fixed Income

All this stimulus has helped fixed income markets. Government bond rates were down for Bunds, Gilts, and especially European peripheral sovereigns like Spain, Portugal and Italy while Treasuries were little changed on the month. Returns for credit markets were generally in the low single digit range with the lower end of the quality spectrum relatively outperforming, with US High Yield bonds gaining 3.9% and Euro High Yield bonds gaining 3.1%, each in their local currencies. The rebound in the oil price and the weakening of the Dollar last month has resulted in USD-based gains generally being greater for most assets.

Market Returns Overview



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

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