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Hale storms

  • Weekly market update
  • 2 minute read

Markets

  • A less constructive week for equities, boosted by sterling weakness in GBP terms. Japan continued to outperform, delivering +1.38%, followed by the UK (+0.77%). Europe and the US delivered +0.56% and +0.46% respectively. Emerging markets declined  -0.30%.
  • Bonds continued to strengthen, especially UK gilts, which gained a further +1.32%, while UK corporates gained +0.66%. European and US government bonds gained +0.65% and +0.29% respectively.
  • GBP declined broadly, falling -1.49% versus USD,  -1.21% versus JPY and -0.80% versus EUR. In USD terms, gold fell -0.80%. Oil reversed much of the prior week’s gain, falling -3.75% on hopes that a partial ceasefire in Yemen may ease tensions.

Macro

  • Sterling rallied on Tuesday, on the Supreme Court’s surprise decision that the prorogation of Parliament was unlawful and void. While MPs now have more time in session, it remains unclear how they plan to use it. Despite a strong start, sterling slid on news of higher public borrowing and comments from MPC member Michael Saunders, indicating that a rate cut may be necessary even if a no deal Brexit is avoided.
  • The emerging market index fell sharply on Friday on reports that the White House is considering restricting US investment into Chinese companies in a bid to limit US exposure to Chinese markets. Measures considered reportedly include delisting Chinese companies from U.S. stock exchanges and limiting allocations to the Chinese market through US government pension funds. The announcement seems at odds with Trump’s announcement on Wednesday that a trade deal could be struck “sooner than you think”.
  • The impact of global trade friction continued to be felt last week, with Purchasing Managers’ Indices slipping lower in both Japan and the Eurozone, two economies with significant trade exposure. To the concern of investors, both Manufacturing and Services indicators slipped in both regions, raising the question of how long strong consumption data can continue against the backdrop of weak trade and weaker corporate confidence. Participants will be watching for evidence of monetary accommodation supporting the economy.

Our view

  • Global growth has weakened somewhat but monetary policy is becoming more accommodative, supporting the economy and markets.
  • While geopolitical risk remains elevated, we believe this environment favours equities over bonds, with alternatives playing an important role in portfolios.
  • Within our equity allocation, we favour companies benefitting from structural growth dynamics, and policy accommodation.

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The information contained in this document is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites. CBAM5805. 30.09.2019.

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