Weekly Market Update: Stocks trade higher on US jobs numbers, Sterling gains versus Dollar and Euro

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Market Update

A second straight week of strong performance for Sterling, up +1.7% vs the US Dollar and +1.2% vs the Euro as markets further priced in a Conservative victory at the coming General Election, once again mean that although global stocks were up in local terms, UK investors experienced negative returns. US equities were down -1.3%, European equities -1.1% and Emerging Market equities -0.7%. Japanese equities were the only major region to avoid losses, with returns flat. UK equities actually fell in local terms, down -1.5%. Energy stocks experienced a strong bounce after weak performance previously, while the consumer discretionary and telecoms sectors suffered. US, UK and German 10Y yields were up between 6.1 and 7.5bps, despite mixed US-China trade deal news. The US 10Y is now at 1.836%, although remains down -84.8bps over the year. In US Dollar terms gold fell -0.3% while oil rallied +7.3%.

CIO Analysis

Global investors spent another week pretending they care about trade deals, but on Friday they confirmed their “risk on mood” by clinging to a good US jobs number and erasing losses for the week. When central banks print, stock markets need but a few positive catalysts to buy. This week markets will be looking at the election result. As long term investors, however, we fear that the election will do very little to address long term concerns for British risk assets. The fact remains that the status quo will probably change, and we have yet to ascertain the direction. A Conservative win, probably medium term pound and yield positive, mostly removes the uncertainty of an immediate crash-out Brexit, perhaps unlocking some investment, but it leaves us with a lot of questions regarding both the EU trade deal and the future vision for the country. A Labour win may alleviate Brexit worries, but it brings a host of issues commensurate with maybe the most radical social agenda the country has seen. In short, markets hate uncertainty and it is difficult to see how they will move to close the gaping discounts for British equities and Sterling in the face of what we believe might be persisting ambiguity. We would thus wait to gauge reactions before we make fundamental changes to our asset allocation, following the result.

David Baker, CIO

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