Twenty20 Investments - iBasket

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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