Macro

Market Reviews - October 2018 GBP

November 2018
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Risk Disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.

Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

UK

FTSE All-Share Index lost 5.2% in sterling terms in October amid a general sell-off across global equity markets. UK economic growth was upwardly revised to 0.7% in the three months to August, versus the prior 0.6% estimate, supported by strength in the services sector. Monthly data was more mixed, with survey figures suggesting that Brexit uncertainty had weighed on services sector activity in September. UK inflation fell below expectations in September, at 2.4% versus 2.7% in the prior month, led by lower food prices. The chancellor used the budget to unveil an increase in public spending, backed by improved forecasts on government borrowing and growth. In terms of sectors, fixed line telecommunications (6.5%) and gas, water & multiutilities (2.9%) outperformed, while industrial transportation (-20.1%) and leisure goods (-16.5%) lagged.

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

Risk Disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.

Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

Europe

The FTSE World Europe ex-UK Index fell 6.1% in sterling terms over October, marking a difficult month for global equities. Eurozone economic growth disappointed forecasts in the third quarter, easing to 0.2% versus 0.4% in the prior quarter, with a slowdown in Italy. Separately, the European Commission rejected the Italian government’s budget proposals citing worries over the country’s overall debt levels and previous pledges to tackle its deficit. Rising energy prices saw eurozone inflation accelerate to a forecast 2.2% in October versus 2.1% in the prior month, its highest level since 2012. The European Central Bank claimed it was still on track to end its quantitative easing programme in December. Survey data suggested that business confidence across the eurozone slipped in October, with the outlook for exporters clouded by trade disputes.

FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index returned -5.0% in sterling terms. US stocks suffered from worries over the impact of trade wars, tightening monetary policy and mixed third-quarter corporate results. Large technology stocks such as Amazon and Alphabet issued disappointing guidance. US economic data remained generally strong, with the US economy growing by an annualised 3.5% over the third quarter. While this surpassed economists’ forecasts, it was well behind the lofty 4.2% pace of the prior quarter. Despite the trade war concerns, US industrial output remained buoyant, beating expectations for September. Survey data was mixed, suggesting some softening in US consumer sentiment in October, despite continuing strength in the labour market. In terms of US equity sector performance, energy, industrials, and consumer discretionary were among the laggards, while consumer staples and utilities led.

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

Japan

The FTSE Japan Index lost 6.9% in sterling terms during October. While it was a difficult month for global equities in general, the shares of Japanese exporters came under pressure as the yen strengthened amid heightened risk aversion. The Bank of Japan downgraded its forecasts for domestic growth and inflation, citing risks such as the ongoing trade dispute between China and the US. The US-China trade war was partly blamed for a fall in Japan’s industrial output in September. Although Japanese retail sales grew in September, the pace of growth slowed from the
prior month, prompting speculation that the economy may have contracted in the third quarter. The government announced that it would implement a twice-postponed sales tax rise, from 8% to 10%, in 2019, as part of measures to tackle public debt.

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index returned -5.6% in sterling terms over October, broadly in line with the fall in global equity markets. While there was increased risk aversion against the backdrop of tightening global monetary policy, trade disputes and mixed corporate results, the month was marked by significant variation in the returns between emerging market countries. Mexico (-15.9%) was the worst performing global market over the month amid concerns over the policies of the newly-elected president. China (-9.7%) and South Africa (-8.6%) were also weak. Brazil (20.2%) was the best performing global market, buoyed by the victory of right-wing presidential candidate Jair Bolsonaro. Turkey (-0.3%) outperformed the global average after the authorities released a detained US pastor,
paving the way for the lifting of recently imposed US sanctions.

FTSE All-World Emerging TR GBP (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned -8.6% in sterling terms during October, underperforming the global average. Asian equities were impacted by disappointing Chinese economic data and mixed corporate results, along with the ongoing worries surrounding the tightening of global monetary policy and the trade dispute between the US and China. Survey data suggested the trade war was weighing on Chinese business activity and sentiment. Against this challenging backdrop, Korea (-12.5%) underperformed, experiencing its worst month in a decade. Hong Kong (-9.9%) and Taiwan (-9.9%) were also weak. Malaysia (-4.6%) and Thailand (-5.3%) held up better than many
of their regional peers.

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

Government Bonds

US Treasury 10-year bond yields spiked at the start of October to over 3.2%, a seven-year high. This reflected investor expectations of further interest rate hikes from the Federal Reserve, as US economic figures remained generally robust and inflationary pressures increased as the oil price also rose. However, this rise triggered a reaction in equity markets, with shares falling up to 10%. This fed back into the Treasury market, with economic optimism being tempered, an accompanying fall in the oil price trimming inflation expectations and investors shifting into defensive assets, including sovereign bonds. US 10-year bonds therefore bounced back, ending the month only slightly down. Moves were less extreme in other sovereign bond markets as economic data was less buoyant than the US. Eurozone economic growth disappointed forecasts in the third quarter, easing to 0.2% versus 0.4% in the prior quarter, marked by a slowdown in Italy. While figures showed that US inflation eased in September, eurozone inflation for October was expected to pick up owing to the impact of higher energy prices. Over the month, global government bond yields were little changed, US 10-year Treasury yields moved from 3.05% to 3.15% over October. German 10-year bund yields fell from 0.47% to 0.39%.

Corporate Bonds

Global corporate bonds underperformed government bonds in October, as credit spreads widened. Global returns for corporate bonds were negative, but local market returns depended on the underlying moves of the respective government bond markets. The month was marked by increased risk aversion, as mixed corporate results added to existing worries over the impact of the ongoing trade dispute between the US and China as well as tightening global monetary policy. While US economic data remained generally robust, there was some weakening in eurozone economic data, with a slowdown in Italy. The latter was in the spotlight as the European Commission rejected the Italian government’s budget proposals, citing worries over the country’s overall debt levels and previous pledges to tackle its deficit. US inflation eased in September, though eurozone inflation for October was expected to pick up owing to the impact of higher energy prices. US-based telecoms group Comcast issued $27bn of bonds to help finance its acquisition of UK-listed telecoms company Sky.

*Source: Lipper to 31 October 2018, total return. Indices rebased to zero at 28 September 2018.

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