Weekly Market Update: Sterling depreciation buoys Global Equities, bond yields fall

Global stocks were down -0.4% in local currency terms last week, however returns for UK investors were +0.3% after Sterling depreciated versus major global currencies, down -0.5% and -0.3% versus the US Dollar and the Euro respectively. US, UK and European stocks returned +0.3%, +0.4% and -0.3% over the week, whilst Emerging Markets equities posted a strong gain of +0.6% in Sterling terms. European Autos, significantly exposed to global trade uncertainties and a slowing Chinese economy, continued to show weakness. Healthcare was the best performing sector globally, while Materials and Energy stocks sold-off. Bond yields closed the week slightly lower, with the UK 10Y Gilt yield down from 0.729% to 0.705% and the US 10Y Treasury yield down from 1.831% to 1.771%. Markets are now pricing in a 0% likelihood of a further Fed rate cut this year. In the commodities space, Gold was down -0.5% while Oil prices were flat over the week.

CIO analysis

It was an easy week for global markets, once again confirming that a trade deal between the US and China is just one Tweet away. However, since what really matters is that central banks have embarked on another round of money printing, asset reflation continues unabated, insofar as it doesn’t become price inflation. For British investors, this was the weekend where major parties finally unveiled their manifestoes. What do these all mean for investors? Very little unfortunately, especially as the more likely outcome (a Conservative win) still comes with policy uncertainty attached. In case of a Conservative win, markets will likely focus on short-term certainties, the probability that Mr. Johnson will get his Brexit transition deal through, and probably only think of the ensuing trade deal uncertainties after mid-next year. A, ceteris paribus, Pound and stock positive event. In case of a Labour victory, predictions are harder, as Mr. Corbyn’s position is for a close union with the EU, but the implementation of his manifesto could see significant business disruption. Markets are still likely to cheer any outcome which sees further deferment of Brexit without significant disruption to the business cycle. So after the weekend, we are none the wiser in terms of risk assets and our previous theses on the markets continue to hold.

David Baker, CIO

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