Market Reviews - GBP

September 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 rose 2.9% in sterling terms during September. Brexit uncertainty, along with slower global economic growth, appeared to be hindering the UK economy as survey data showed UK manufacturing and services activity had declined in August. However, official data showed the UK economy had grown by more than expected in July, at 0.3% month on month. Parliament passed a law requiring Prime Minister Boris Johnson to request a three-month Brexit delay by 19 October to avoid a no-deal scenario, though there was continued speculation that Johnson could seek to bypass this in some way. Parliament was subsequently suspended but was soon recalled after the UK’s supreme court ruled that Johnson’s decision to prorogue parliament was unlawful. In terms of sectors, life insurance (9.7%) led, while industrial metals & mining (-8.4%) 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 rose 1.0% in sterling terms. The European Central Bank (ECB) cut the interest rate on its deposit facility by 10 basis points to -0.50% and pledged to restart its asset purchase programme from the beginning of November. It also unveiled specific measures to ease lending terms for eurozone banks. Official figures suggested that eurozone inflation eased to 0.9% in September versus 1% in the prior month. Eurozone industrial activity contracted by more than forecast in July, with Germany hardest hit, as trade uncertainty and the slowing global economy hit exporters. The Ifo Institute lowered its forecast for German growth in 2019, from 0.6% to 0.5%. A new, less euro-sceptic coalition government was installed in Italy, with the involvement of the country’s centre-left Democratic party.

US

The FTSE All-World North America Index rose 0.7% in sterling terms over September. The Federal Reserve (Fed) cut interest rates by 25 basis points following its September meeting, though did not forecast any further rate reductions for the remainder of 2019. In early September, the US and China agreed to schedule direct trade negotiations for October. Towards month-end, US domestic political uncertainty was on the rise, with President Trump facing impeachment proceedings over allegations that he pressured Ukraine to investigate Democrat presidential contender Joe Biden. US economic data released in the month was largely positive, with survey data suggesting US manufacturing activity had rebounded to a five-month high in September. Data also showed that US retail sales beat forecasts in August.

Japan

The FTSE Japan Index returned 3.0% in sterling terms during September, with euro weakness boosting returns for eurozone-based investors. Japanese economic data released during the month was mixed, with trade worries continuing to weigh on the manufacturing sector. Figures showed Japanese exports had declined for a ninth consecutive month in August, while survey data indicated that manufacturing activity had eased to a seven-month low also in August. Nevertheless, Japanese retail sales picked up in August, rising 2% year on year versus a decline of the same magnitude in the prior month. While an escalating US/China trade dispute continued to weigh on Chinese demand for Japanese products, there was some positive news on the trade front in September as Japan was able to agree a partial trade deal with the US.

Emerging Markets

The FTSE All-World Emerging Index returned 0.1% in sterling terms over September. While emerging market equities were pressured by the US/China trade dispute and slowing global economic growth, monetary loosening from the Fed, the ECB and various emerging-market central banks provided support for emerging-market stocks. Turkey (10.4%) was the best-performing emerging market over the month, as assets there were boosted by a further substantial interest rate cut from the country’s central bank. Russia (2.3%) was similarly underpinned by an interest rate cut from its central bank in September. India (1.9%) found support from the government’s move to slash the local corporate tax rate from 30% to 22%. China (-1.1%) underperformed, hindered by the ongoing trade war with the US and concerns on the economic outlook. South Africa (-1.7%) similarly lagged amid economic worries.

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned 1.6% in sterling terms during September. South Korea (6.0%) was the best-performing market in the region as concerns over the impact of trade tensions with Japan appeared to ease. Taiwan (2.9%) also outperformed, with support from its technology sector. Hong Kong (-1.2%) was among the laggards as it continued to be held back by weak sentiment amid continuing protests. While the US/
China trade dispute continued to weigh, in early September, the US and China agreed to schedule direct trade negotiations for the following month. Monthly Chinese economic data was mixed amid some signs that local stimulus measures were providing some support. However, official survey data suggested Chinese manufacturing activity contracted for a fifth consecutive month in September.

Government Bonds

Global government bond yields rose over the month, despite the Fed and the ECB moving to loosen monetary policy in the face of slowing economic momentum. The Fed cut interest rates by 25 basis points to 2% following its September meeting, though did not forecast any further rate reductions for the remainder of 2019. Meanwhile, the ECB unveiled a package of easing measures, cutting the interest rate on its deposit facility by 10 basis points to -0.50% and pledging to restart its asset purchase programme from the beginning of November at a pace of €20bn per month. Official figures suggested that eurozone inflation had eased to 0.9% in September versus 1% in the prior month. However, core US consumer prices edged up to 2.4% in August versus 2.2% in July.

Corporate Bonds

Global corporate bond yields ended the month little changed, though investment grade credit outperformed government bonds. Both the Fed and the ECB responded to weak economic momentum with rate cuts following their September meetings. The ECB also unveiled a new quantitative easing programme and announced measures to improve lending terms for eurozone banks. The US-China trade war continued to hold back risk markets, given the concerns over its potential impact on the global economic outlook. There were also the continuing worries over the prospect of a no-deal Brexit. Italian bonds were boosted by the installation of a more pro-EU Italian coalition government, backed by the country’s centre-left Democratic party. Corporate bond issuance was buoyant, with Apple and Disney each issuing around $7bn of debt.

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

Subscribe to our Insights