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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.

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