Macro views

Market Reviews - January 2020 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
Febbraio 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 lost 2.5% in euro terms during January, lagging the global average. The UK left the EU on the final day of the month after the two sides ratified the withdrawal agreement, as expected. Despite downgrading its growth forecasts for the UK economy, the Bank of England voted to keep interest rates on hold. UK headline inflation slid to its lowest level in over three years in December, at just 1.3%. Survey data suggested UK manufacturing activity had contracted further in December, though there was some improvement in the service sector PMI figures. UK retail sales declined in December, with the pace of contraction accelerating from the prior month. In terms of sectors, leisure goods and household goods & home construction led, while fixed line telecommunications and forestry & paper 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) EUR (%)*

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

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 returned -0.8 in euro terms. Official data indicated the eurozone economy grew by just 0.1% over the fourth quarter versus 0.3% in the prior quarter, with both France and Italy contracting over the final few months of the year. PMI survey data for January pointed to some improvement in activity levels for Germany in contrast to deterioration in France. Early in the month, France was hit by a new wave of nationwide protests over its governments’ pension reform plans. Meanwhile, Germany’s Ifo business confidence gauge registered a surprise fall for January, its first decline since September. Eurostat figures suggested that headline eurozone inflation rose to 1.3% in December, up from 1% in the prior month, lifted by higher energy costs.

FTSE World Europe ex UK TR EUR (%)*

FTSE World Europe ex UK TR EUR (%)*

US

The FTSE All-World North America Index rose 1.5% in euro terms over January. US stocks initially found support from hopes surrounding easing trade tensions, with the US and China signing a “phase-one” trade deal. Towards month-end, however, US equities were hindered by the coronavirus outbreak that originated in China and worries over its potential impact on global growth. The US economy grew at an annual pace of 2.1% in the final quarter of 2019, unchanged from the prior quarter. PMI survey data suggested the rate of contraction in US manufacturing had accelerated in December, just as the ongoing expansion in the service sector quickened. US jobs growth for December disappointed estimates, trailing the prior month’s tally. Headline US inflation rose to 2.3% in December, up from 2.1% in November.

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

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

Japan

The FTSE Japan Index returned -0.4% in euro terms during January. Shares suffered from the coronavirus outbreak that originated in China and its potential to increasingly spread outside the country. As the death toll from the virus rose in China, Japan warned that the crisis could have a significant impact on its own economy, with adverse effects on corporate profitability and manufacturing activity. Separately, the Bank of Japan’s governor said that the domestic economy had likely contracted in the fourth quarter of 2019 owing to typhoonrelated disruption. Japanese exports disappointed forecasts, shrinking for the 13th consecutive month in December, with weakness in shipments to the US. However, data showed Japan’s core machinery orders saw a record upsurge in monthly growth
for November.

FTSE Japan TR EUR (%)*

FTSE Japan TR EUR (%)*

Emerging Markets

The FTSE All-World Emerging Index returned -3.3% in euro terms over January. Emerging market stocks found support from hopes on easing trade tensions, with the US and China signing a “phase-one” trade deal in mid-January. However, as the month progressed, emerging market stocks were hit by worries over the coronavirus and its spread beyond China. Against this backdrop, certain Asia Pacific markets were among the laggards over the month, including Thailand, the Philippines and China itself. In contrast, Egypt was among the best-performing markets over January as the country’s improving macroeconomic backdrop buoyed sentiment. Meanwhile, Turkey was similarly boosted by rising optimism on its domestic economy. Mexico rallied after the US Senate approved a new trade agreement with both Mexico and Canada.

FTSE All-World Emerging TR EUR (%)*

FTSE All-World Emerging TR EUR (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned -0.4% in euro terms during January, underperforming the global average. Asia Pacific shares sank after thousands of people across China became infected with a new coronavirus, raising concerns over the outlook for regional and global growth. There were reports of cases across the world, with Asia Pacific countries in close proximity to China viewed as especially vulnerable to contagion. Thailand was among the markets experiencing the brunt of the falls, alongside the likes of Korea and Taiwan. The US and China signed a “phase-one” trade deal in mid-January, officiating a truce in their trade dispute. Chinese growth remained at 6% in the fourth quarter, in line with the prior quarter and the lowest level in three decades.

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

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

Government Bonds

Global government bond yields fell over January amid rising concern over the impact of the coronavirus crisis on global growth, with China reporting thousands of cases and hundreds of deaths. US economic data was mixed, with PMI survey data for December indicating further strength in the service sector in contrast to worsening conditions in manufacturing. Fourthquarter US economic growth came in at an annual rate of 2.1%, in line with the prior quarter. Meanwhile, the eurozone grew by just 0.1% over the fourth quarter versus 0.3% in the prior quarter, with both France and Italy contracting. US core PCE inflation rose to 1.6% in December versus 1.5% in the prior month, while headline US inflation rose more substantially. Core eurozone inflation remained unchanged in December, though headline eurozone inflation picked up.

Corporate Bonds

Global corporate bonds generated positive returns over January, during a month when global government bond yields declined against the backdrop of the coronavirus crisis. Hopes surrounding easing trade tensions initially supported risk appetite, with the US and China signing a “phase-one” trade deal in mid-January. However, as the period progressed there were increasing worries about the new coronavirus that originated in China and its potential impact on global growth, with the Chinese authorities reporting thousands of cases and hundreds of deaths. US economic data was mixed though continued to be more robust than the eurozone, with the French and Italian economies shrinking over the fourth quarter. The UK left the EU at month-end after the two sides ratified the withdrawal agreement, as expected. New issuance came from the likes of Spanish telecoms giant Telefonica and Italian multiutility group Acea.

*Source: Lipper to 31-Jan-2020, total return, in euro terms. Indices rebased to zero at 31-Dec-2019.

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