Macro views

Market Reviews - December 2019 GBP

Market reviews - GBP, FTSE All-Share, FTSE World Europe ex UK TR GBP, FTSE All-World North America TR GBP, FTSE Japan TR GBP, FTSE All-World Emerging TR GBP, FTSE World Asia Pacific ex Japan TR GBP
Janvier 2020
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Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

UK

The FTSE All-Share Index gained 3.3% in sterling terms during December. The UK appeared on course to leave the EU in January after the Conservative party won the December general election by a sizeable margin and parliament voted in favour of ratifying the withdrawal agreement with the EU. UK economic data was generally lacklustre, with surveys suggesting that both the manufacturing and service sectors had contracted in November. UK retail sales also fell for a fourth consecutive month in November. UK inflation remained well below the Bank of England’s target, at just 1.5% in November, while official data showed house price growth had dipped to a seven-year low in October. In terms of sectors, technology hardware & equipment (16%) and electricity (10.6%) led, while mobile telecommunications (-3.8%) and personal goods (-3.3%) underperformed.

Risk Disclaimer

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

FTSE All-Share Total Return (TR) GBP (%)*

FTSE All-Share Total Return (TR) GBP

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Europe

The FTSE World Europe ex-UK Index rose 1.1% in sterling terms. European stocks, along with global equities in general, found support from progress in US-China trade talks. Eurozone economic data released during December was mixed, with figures showing German industrial output had fallen sharply in October year on year, while capital goods saw the brunt of the decline. Survey data also showed the eurozone manufacturing sector had contracted in December, depressed by weaker activity in Germany, though the eurozone service sector activity gauge remined inside expansion territory. The Sentix eurozone investor sentiment index turned positive in December following several months of negative readings. There was additionally an overall improvement in German business confidence, with the Ifo gauge rising to its highest level in six months in December.

FTSE World Europe ex UK TR GBP (%)*

FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index advanced 0.6% in sterling terms over December. US stocks made good gains over the month, buoyed by trade hopes and positive economic data. The US and China are to sign a “phase one” trade deal in January, while the US also agreed to drop some of the tariffs it imposed on Chinese goods during 2019 and cancel a further tariff rise that was scheduled for December. China agreed to desist from competitive currency devaluations, offer improved access for US financial services, provide better protection for US intellectual property and annually import substantial amounts of US agricultural goods. US labour market and manufacturing data surpassed expectations for November. President Trump was impeached for abusing his office but is expected to be acquitted by the Senate in early 2020.

FTSE All-World North America TR GBP (%)*

FTSE All-World North America TR GBP (%)*

Japan

The FTSE Japan Index returned -0.3% in sterling terms during December. Returns for UK-based investors from Japanese equities suffered from weakness in the yen versus sterling over the month. Japan’s legislature ratified a trade deal with the US that comes into effect from the beginning of January and serves to lower bilateral trade tariffs. Japan’s third-quarter growth came in at 1.7%, up from 0.9% in the prior quarter, supported by robust business investment. However, business confidence among large Japanese manufacturers, as measured by the Tankan index, declined in the final quarter of 2019, marking the gauge’s fourth consecutive quarterly fall. The Japanese government launched a stimulus package worth over $120bn, aiming to reduce the chances of a recession, bolster infrastructure and address Typhoon damage.

FTSE Japan TR GBP (%)*

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index returned 4.5% in sterling terms over December, outperforming the global average. Emerging market stocks found support from progress in USChina trade talks. Brazil (10.1%) was among the best-performing markets over the month, buoyed by fresh domestic interest rates cuts and improving local economic data. On the negative side, India (-1.4%) was held back by relatively subdued domestic economic data. PMI survey data suggested China’s manufacturing and non-manufacturing sectors had expanded in December, though the latter at a slower pace than the prior month. The US and China are expected to sign a “phase-one” trade deal in January, with the US also dropping certain tariffs on Chinese goods and China pledging to other measures such as to refrain from competitive currency devaluations.

FTSE All-World Emerging TR GBP (%)*

FTSE All-World Emerging TR GBP (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned 2.7% in sterling terms during December. Equities were bolstered by some progress in US-China trade negotiations during the month, with expectations that the two sides would sign a “phase one” trade deal in January. The US agreed to axe certain tariffs on Chinese goods while China undertook to desist from competitive currency devaluations and agreed to other measures such as to provide more protection for US intellectual property. Korea (7.8%) and Taiwan (4.9%) were among the markets to benefit most from the easing in trade tensions. Thailand (-1.6%) underperformed amid domestic economic and political worries. Australia (-0.6%) was also held back by concerns over the domestic economic outlook. PMI survey data suggested China’s manufacturing and non-manufacturing sectors had expanded in December.

FTSE World Asia Pacific ex Japan TR GBP (%)*

FTSE World Asia Pacific ex Japan TR GBP (%)*

Government Bonds

Global government bond yields were little changed over December. The month was characterised by some improvement in US-China trade relations and generally positive US economic news. Monthly data pointed to further strength in the US labour market in November, while US manufacturing output for November additionally beat forecasts. US inflation rose ahead of estimates in November, to 2.1% versus 1.8% in the prior month, while the Federal Reserve’s preferred core PCE price index measure dipped to 1.6% in November versus 1.7% in the prior month. Eurozone economic data was mixed, with data showing German industrial output had declined sharply in October. Eurozone inflation accelerated to 1% in November from 0.7% in October, while the core measure rose to 1.3% in November versus 1.1% in the prior month. 

Corporate Bonds

Global corporate bond spreads narrowed over the month with the asset class outperforming government bonds. Risk appetite was bolstered by progress in US-China trade talks along with positive US economic data. As part of a “phase one” US-China trade deal, which is scheduled to be signed in January, the US agreed to drop some of the tariffs it imposed on Chinese goods earlier in 2019 and cancelled a further tariff rise that was scheduled for December. China, meanwhile, agreed to desist from competitive currency devaluations, offer improved access for US financial services, provide better protection for US intellectual property and annually import substantial amounts of US agricultural goods. US jobs and industrial output figures beat forecasts, with strong rises for November. In contrast, data showed German industrial output fell sharply in October. 

 

*Source: Lipper to 31-Dec-2019, total return. Indices rebased to zero at at 29-Nov-2019.

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