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5. June 2017 21:37
by Irene
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May 2017 - Market Commentary

5. June 2017 21:37 by Irene | 0 Comments

Another month laden with politics and elections on the news front. President Macron’s win in France was greeted well by the market and brought on what might be best described as a risk-on environment in Europe. In the UK the pre-election mood had been heating up and with it an increase in uncertainty on who will win the election. Sterling continued its rally at the beginning of the month, but was down later on with the news on a tighter outcome as suggested by opinion polls and ended the month down -0.5% against the Dollar. Developed Markets Equities (MSCI World) returned 2.1% in May in USD (2.7% in GBP).

United Kingdom

The markets looked quite rosy at the beginning of May when polls showed a comfortable lead for the Conservatives in the June election. When that majority began to tighten later on in the month, Sterling weakened somewhat, but the FTSE 100 still managed to rally 4.9% for the month. Consumer spending was reported upwards, although GDP growth was revised down as were the manufacturing and services sectors.

Europe

The Eurozone saw a good run in equities boosted by the French election outcome that did not upset the apple cart, a further decrease in the unemployment rate to 9.3%, and increase in consumer confidence. Progress on bailout talks around Greek debt did also help, with Greek equities returning 9% in EUR. On the other hand, there are concerns of a possible early election in Italy this autumn, with potentially more euro-sceptic parties winning ground.

United States

Despite the economy still waiting for Trumponomics to happen in the form of tax cuts and political stimulus, the rally in the United States continued. The US market saw a broad-based higher earnings trend, resulting in a record level of the S&P 500 at more than 2,430 and a 1.4% return for the month in USD (1.9% in GBP). The employment rate for May fell to 4.4% and an increase in the flash May PMI Composite index, pointing to continued growth.

Emerging Markets

Generally a more risk-on feeling globally was supportive for Emerging Markets with the MSCI Emerging Markets returning 3% in USD (3.6% in GBP). Eastern European equities did well amid the wider improved European outlook. At the bottom of the spectrum though were Brazilian equities with another round of corruption allegations and increased political risk. China was downgraded by Moody’s amid an increased corporate debt pile.

Fixed Income

Global bonds were stronger across the risk spectrum in May, except for inflation-linked bonds with inflation slowing down slightly in a few regions. Investment-grade and Emerging Markets bonds on average did well.

Commodities

Commodities did not fare so well in May. Brent crude was down -2.8% amid oversupply concerns and Gold was more or less flat for the month, returning 0.3%. Commodities on average produced a negative return, which in turn led to the slowing down of inflation that we had also seen filtered through for inflation-linked bonds.

Market Returns Overview

Source: Markit, Twenty20 Investments, as of 31 May 2017, all returns in GBP.

5. March 2017 21:32
by Irene
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February 2017 - Market Commentary

5. March 2017 21:32 by Irene | 0 Comments

The month of February has seen risk on and equity markets were mostly positive amid expectations of fiscal stimulus in the United States and a more hawkish tone from the central banks of the US and the UK. Many indices hit highs as did the Purchasing Managers Index (PMI) in the United States at 57.7 and in Europe at 55.4, showing expansion on both sides of the pond. Despite the risk on scenarios, Gold returned 3% in USD for the month.

United Kingdom

The Bank of England kept its asset purchase programme on hold, but increased the forecast for UK growth in 2017 from 1.4% in November to 2%. It also expects inflation to reach 2.7% by the end of the year. This might hurt domestic growth, which we can slowly see from higher import prices feeding through to the consumer. A rate hike is not in sight yet as this onset of inflation is much more due to the fall in Sterling and higher oil prices than due to an overheating economy. Most likely we will see the Prime Minister Theresa May trigger Article 50 this month, although some last minute changes will have to be made before it can be put through.

Europe

The risks for Europe are the highest on the political front, with elections dominating the news for this year with the Netherlands kicking off this month, followed by France in April. Aside from that, the high PMI index, showing expansion, and an improved economic sentiment are encouraging. The Eurozone saw inflation pick up to 1.8%, with Germany’s inflation rising to 2.2%, resulting in more noise being made against the loose monetary policy of the ECB. <

United States

Positive macro-economic news and expectations of fiscal stimulus were driving the probability of a rate hike in March in the United States higher, from 30% at the beginning of the month to 80% at the end of February. Fed chair Janet Yellen’s testimony in front of US congress provided a further strong signal that the Fed is ready to hike, highlighting strong labour market data and rising inflationary pressures. The eyes will now be on President Trump’s details of his fiscal policies and whether he can keep his promise of extra jobs growth.

Emerging Markets

Emerging Markets joined the equities rally, returning 3.1% in USD in February, with Brazil providing the largest returns at 4.3% in USD. Inflationary pressures can be found in Emerging Markets as well, with China’s producer price index having risen to 6.9% and India’s GDP growth coming in higher than expected at 7%.

Fixed Income

Despite the risk on in markets, the reflationary trend across fixed income took a halt in February, with government bonds providing positive returns across the major countries. Investment-grade and high yield bonds followed suit, with higher returns amid the higher credit risk end.

Commodities

Commodities did well more or less across the board, with WTI Crude Oil increasing by 2%, gold on the up and corn and wheat positive as well. It might be of comfort to some that cocoa is still drifting down, having lost nearly 40% from its highs at the end of April last year. If only the price of that bar of chocolate came down in line with that significant drop.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 28 Feb 2017, all returns in GBP.

6. February 2017 14:58
by Irene
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January 2017 - Market Commentary

6. February 2017 14:58 by Irene | 0 Comments

We welcomed 2017 and were greeted with political headlines by the dozen. Finally we have a new president in the United States and any hopes of a more moderate tone coming from the White House after President Trump’s inauguration were shattered very quickly. If Trump sticks to his economic growth election promises as much as some of his other more controversial promises then we should see growth in the US and the rest of the world. There is still some risk associated with that and while from a macro-economic point of view the global economy looks quite positive (global manufacturing PMI for example was at 52.7 in December, showing expansion), the risks on the horizon seem to be more of a political nature.

United Kingdom

Closer to home, Prime Minister Theresa May had to battle with her own political agenda – Brexit and whether she needs the vote from MPs or not, a NHS in crisis, and a visit to the US that seemed rosy for only a very short period of time. The answer to the Brexit vote is yes, which will mean some more discussions and amendments before Article 50 can be triggered with the EU. The markets still took it as a sign that Brexit will go ahead, with Sterling slightly up and the FTSE 100 slightly down since then. Over the full month, the FTSE 100 lost 60 bps and Sterling is up 1.9% against the Dollar. Still, the outlook for the UK economy, aside the Brexit risks, looks positive.

Europe

Election fever is slowly starting across Europe. France is already voting for its different party candidates and currently Mary Le Pen of the Front National is in front for the first round, but the odds are still low for a general win. The Netherlands and Germany will be voting as well this year and we might see Italy added to this mix after their constitutional court ruling with mixed results. This adds political risk, also for the United Kingdom, although Europe is looking good with stronger growth and higher inflation. <

United States

Donald Trump was inaugurated as the new President of the United States and already started with a flurry of controversial executive orders. All eyes will now be on his fiscal policies and whether he will keep his promises of extra jobs and be able to instil more growth into the economy. The question is also how much of that hope of increased fiscal stimulus is already priced into the markets.

Emerging Markets

Emerging Markets equities had been battered after President Trump’s election, but have regained some of these losses in January, in part due to the recovery in commodity prices. Brazil was the winner, returning 11.0% in USD (9.2% in GBP) and the MSCI Emerging Markets index returned 5.5% in USD. China released GDP growth numbers for the fourth quarter of 6.8% annualised, slightly faster than expected.

Fixed Income

The reflation theme, which had driven the appreciation of the Dollar and bond yields in the last two months of 2016, paused for breath in January. Treasuries were approximately flat and flows were more into higher yielding bonds like high yield and specifically also Emerging Markets bonds.

Commodities

Finally it was a fairly mixed month for commodity markets with metals outperforming and gold returning 5% in USD, but oil on the other hand down -2% (WTI Crude) on concerns of additional supply from the US.

Market Returns Overview


Source: Markit, Twenty20 Investments, as of 31 Jan 2017, all returns in GBP.

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.

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