Market Reviews - DEC 2018 GBP

January 2019
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Risk Disclaimer

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

The FTSE All-Share Index fell 3.8% in sterling terms during December amid heightened risk aversion and sharp falls across global equity markets. Brexit uncertainty continued to weigh, with Prime Minister Theresa May postponing a parliamentary vote on her controversial EU withdrawal agreement amid clear signs that it faced defeat. Survey data suggested Brexit uncertainty was depressing UK business confidence. Against warnings from leading retailers over difficult trading conditions, retail sales grew by a meagre 0.4% in the three months to November. UK inflation eased to 2.3% in November, versus 2.4% in the prior month, against the impact of falling oil prices. In terms of sectors, oil equipment, services & distribution (-17.4%) and general retailers (-12.6%) were among the laggards, while industrial metals & mining (7.3%) and beverages (-0.7%) outperformed.

Risk Disclaimer

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.

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

Europe

The FTSE World Europe ex-UK Index returned -4.6% in sterling terms as global equity markets plunged. Eurozone economic news continued its recent weaker trend, with the Ifo survey showing German business confidence had reached its lowest level since 2016 in December as the US/China trade war and worries about the global growth outlook weighed. The Sentix index suggested eurozone investor sentiment had hit a four-year low in December.

The Italian government agreed a compromise with the EU to rein in its spending plans for 2019. French President Macron cancelled a fuel tax rise amid violent protests. Fears of a no-deal Brexit grew as the UK government appeared divided over withdrawal terms and Prime Minister Theresa May postponed a key parliamentary vote. The European Central Bank ended its bond-buying programme as expected, but also reined in its growth forecasts.

FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index lost 8.8% in sterling terms, underperforming the global average. Partial inversion of the US yield curve signalled fears that the US economy was headed for recession, hitting financial stocks. Energy shares lost ground as crude prices continued to fall. Survey data on US economic activity deteriorated as fears mounted over the impact of the trade war with China. This was despite President Trump and China’s President Xi agreeing a temporary truce to facilitate negotiations. Domestic political uncertainty also impacted US equities, with the US government entering a partial shutdown towards month-end as Democrat lawmakers opposed President Trump’s plans to fund a border wall with Mexico. Despite vocal objections from President Trump, the US Federal Reserve raised interest rates by 0.25% to 2.5%. 

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

Japan

The FTSE Japan Index returned -6.7% in sterling terms during December, amid sharp falls across global equity markets. The yen was the best-performing currency amid a general flight to safe havens and worries about the global growth outlook, putting pressure on the shares of Japanese exporters. Japan’s third-quarter gross domestic product was downwardly revised, with the economy believed to have contracted by 2.5% versus 1.2% previously, as the recent succession of natural disasters hit output harder than first thought. The Japanese government unveiled a range of tax breaks on housing and cars in a bid to prop up the domestic economy. Both industrial output and retail sales contracted in November, while consumer price inflation also weakened. Survey data suggested manufacturers were expecting a further contraction in output in January. 

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index fell 2.4% in sterling terms over December, though outperformed the global average. Latin America was the best-performing region over the month, led by Mexico (3.5%), as the Mexican peso rebounded from a sell-off in the prior month. Although in negative territory, Brazil (-1.3%) outperformed the global average as it continued to be helped by positive sentiment on the triumph of business-friendly candidate Jair Bolsonaro in the presidential election. Within emerging markets, China (-5.7%) was among the laggards as it was impacted by weak domestic economic data and concerns over the impact of the trade war with the US. In a similar vein, Turkey (-4.6%) also suffered from lacklustre economic data, with falling industrial production.

FTSE All-World Emerging TR GBP (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index fell 1.6% in sterling terms during December, though outperformed the global average. Within the region, Australia (-3.2%) underperformed, suffering from worries over the global growth outlook. Thailand (-2.8%) was similarly impacted by worries over the economic outlook, and especially the trade war between the US and China. Malaysia (1.8%) was among the best-performing countries in sterling terms, helped by gains for the ringgit. Hong Kong (-0.2%), meanwhile, was broadly flat. Survey data suggested China’s manufacturing sector had contracted for the first time in over two years in December. Official data also showed that industrial profits for Chinese firms fell in November. President Trump and China’s President Xi agreed a temporary truce to their trade dispute to facilitate negotiations.

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

Government Bonds

Global government bond yields fell over December, with the asset class finding support from a general flight to safe havens. Investors rotated out of risky assets amid worries over the global growth outlook. Following its December meeting, the Federal Reserve raised interest rates by 0.25% to 2.5%, while projecting two further rate hikes in 2019. Despite warning of downside risks to the outlook, the European Central Bank ended its bond-buying programme in December as expected. Both US and eurozone economic survey data released in December pointed to slowing momentum. The US yield curve partially inverted, with the yield for 2-year US Treasuries briefly rising above that for 5-year Treasuries, signalling fears that the US economy was headed for recession. US and eurozone headline inflation were pushed down by falling oil prices.

Corporate Bonds

Global corporate bonds underperformed the government bond segment over December as yield premiums for credit widened. Capital markets experienced increased volatility and risk aversion over the month. The energy sector was hit by a continued fall in the price of crude on worries over a glut in supply and the outlook for demand. A partial inversion of the US yield curve signalled concerns over the outlook for the US economy, while there was also a deterioration in US economic survey data. The Federal Reserve raised interest rates by 0.25% to 2.5%, projecting two further rate hikes for 2019. Eurozone economic data continued its lacklustre run, though the European Central Bank ended its bond-buying programme in December as expected. US and eurozone headline inflation were pushed down by falling oil prices. New issuance activity was relatively weak.

 

 

*Source: Lipper to 31 December 2018, total return. Indices rebased to zero at 30 November 2018.

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