Market Reviews - GBP

August 2019

Investment Content team

Subscribe to our Insights

Risk Disclaimer

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 lost 3.6% in sterling terms during August, underperforming the global average. There was increasing speculation that the UK would leave the EU without a deal in October, especially after the new administration led by Boris Johnson revealed plans to suspend parliament in September. UK equities also suffered from increased global risk aversion amid further escalation in the US/China trade dispute. The UK economy contracted by 0.2% in the second quarter, with manufacturing activity hit by the unwinding of Brexit-related stockpiling. The Bank of England cut its growth forecasts to 1.3% for both 2019 and 2020 versus its prior respective forecasts of 1.5% and 1.6%, citing Brexit uncertainty and global trade tensions. In terms of sectors, technology hardware & equipment (16.0%) led over the month, while industrial metals & mining (-19.4%) 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 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 lost 1.4% in sterling terms. Eurozone economic data was generally weak, with the German economy shrinking by 0.1% in the second quarter. Meanwhile, the Germany ZEW index of economic sentiment and the Ifo business climate barometer for August fell to multi-year lows. The Bundesbank warned of a potential further contraction for the German economy in the third quarter, citing the escalating US/China trade war and a possible no-deal Brexit. Separately, data showed the value of trade between eurozone states declined at its fastest pace in over six years in June. Nevertheless, survey data suggested a modest improvement in eurozone economic activity in August versus July, driven by an improvement in service sector activity. Italy appeared
on course to hold fresh elections following the collapse of its coalition government.

US

The FTSE All-World North America Index fell 1.2% in sterling terms over August. Trade tensions intensified as the Trump administration placed tariffs on a further $30bn of Chinese imports, prompting China to retaliate with fresh tariffs on US goods. US Treasury yield curve inversion highlighted rising concern over the possibility of an imminent US recession. Domestic economic news was mixed, with survey data suggesting that US manufacturing activity had contracted for the first time since 2009 in August. US retail sales rose 0.7% in July, surpassing economists’ forecasts. US non-farm payrolls rose by a healthy 164,000 in July, in line with estimates, though down from the prior month. Wages grew at 3.2% year on year in July, a slight acceleration versus June. However, the US core personal consumption price index remained unchanged at 1.6% in July.

Japan

The FTSE Japan Index returned -0.6% in sterling terms during August. Data showed Japan’s economy expanded at an annualised 1.8% in the second quarter, down from the 2.8% pace of the prior quarter, though ahead of forecasts. Official data indicated Japanese exports fell for an eighth consecutive month in July, though at a slower pace of decline versus June. Survey data suggested Japan’s manufacturing sector contracted for a fourth consecutive month in August. Japan’s industrial production rebounded 1.3% in July from the 3.3% fall registered in June. Retail sales disappointed forecasts in July, falling 2%, the sharpest decline in over three years. A general appreciation in the yen on safe-haven flows weighed on the shares of Japanese exporters. Nevertheless, sterling weakness versus the yen boosted returns from Japanese equities for UK-based investors.

Emerging Markets

The FTSE All-World Emerging Index lost 3.9% in sterling terms over August. Emerging market stocks came under pressure from further escalation in the US/China trade war and deepening concerns on the outlook for global growth. Global trade tensions intensified as the Trump administration placed tariffs on a further $30bn of Chinese imports, prompting China to retaliate with fresh tariffs on US goods. Turkey (-10.2%) was one of the weakest-performing markets over August, with the lira suffering from global risk aversion and Turkish assets in general being pummelled by concerns surrounding political interference in central bank policy. Brazil (-8.7%) and South Africa (-7.9%) also came under pressure from heightened risk aversion and currency weakness. Mexico (-0.2%) outperformed, finding support from its central bank’s move in August to cut interest rates.

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index lost 4.2% in sterling terms during August, underperforming the global average. Trade tensions intensified as the Trump administration placed tariffs on a further $30bn of Chinese imports, prompting China to retaliate with fresh tariffs on US goods. Hong Kong (-7.8%) was one of the worst-performing global markets over the month, suffering from the escalation in the trade war as well as concerns surrounding local anti-extradition bill protests. Korea (-4.4%) continued to be hit by the recent upsurge in trade tensions with Japan. Australia (-3.9%) was also bruised by the escalating US/China trade war and concerns on global growth, though modestly outperformed the regional average in sterling terms. Taiwan (-1.6%), with its heavy technology weighting, proved more resilient.

Government Bonds

Global government bond yields fell over the month as risk aversion increased amid intensifying trade tensions and worries over the global economic growth outlook. US Treasury yield curve inversion highlighted rising concern over the possibility of an imminent US recession. Two-year yields traded higher than 10-year yields by the largest amount since 2007, while the yield on 10-year US Treasuries declined below 1.5%. German 10-year bund yields fell further into negative territory, ending the month at -0.70%. While US economic news was mixed, eurozone data suggested the region’s exporters were suffering from the escalating US/China trade war. The US core personal consumption price index remained unchanged at 1.6% in July, while official estimates put core eurozone inflation at just 0.9% in August, also unchanged from the prior month.

Corporate Bonds

Global corporate bonds generated positive returns over the month, though spreads widened amid increased risk aversion. Trade tensions intensified as the Trump administration placed tariffs on a further $30bn of Chinese imports, prompting China to retaliate with fresh tariffs on US goods. US Treasury yield curve inversion highlighted rising concern over the possibility of an imminent US recession. While US economic news was mixed, eurozone data suggested the region’s exporters were suffering from the escalating US/China trade war. Italy appeared on course to hold fresh elections following the collapse of its coalition government. There were also rising concerns over the possibility of a no-deal Brexit. Investor demand for credit was buoyant as 10-year US Treasuries declined below 1.5% and German 10-year bund yields fell further into negative territory, ending the month at -0.70%.

*Source: Lipper to 30-Aug-2019, total return. Indices rebased to zero at at 31-Jul-2019.

Subscribe to our Insights