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The week in review by Ari Towli and Nick Stanhope 09.10.17

Article first published on: 10/09/17 01:10:pm

Markets and key events

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Monday marked a strong start to the new week with the bulk of major equity indices ending the trading session in the green.

In the UK, the FTSE 100 climbed 0.90% and marked the highest close in nearly 2 months, as a weakening pound enabled the index to post a 4th consecutive day of gains. A drop in the Euro which followed the chaotic independence referendum in Catalonia, assisted Eurozone stocks at the start of the new week positively, with most bourses ending the session firmly in the green. Spanish stocks traded on the backfoot however, with the Spanish Continuous Market exchange (IBEX 35) losing 1.21%. Risk sentiment in the country was non-existent as Catalonians turned up to vote on a referendum for independence from Spain. The event, which was banned by Madrid saw various clashes erupt which left several persons in need of medical attention. In the United States (US), sentiment was risk-on, this in spite of the mass shooting in Las Vegas on Sunday. The Dow Jones ended the day 0.68% higher in new record territory.

Asian markets followed suit largely trading higher, whilst Chinese markets closed for a holiday week. In Japan, the Nikkei has gained roughly 0.95% hitting fresh 2-year highs.

The rally continued into Tuesday with most European Stock Exchanges or bourses once again posting strong gains. In Spain, investor concerns over the future of the country, continued to weigh heavily on Spanish stocks. Over in the US, the Dow Jones rally continued for the 5th successive session marking yet another record high close driven largely by strong economic data including the Institute for Supply Management (ISM) manufacturing survey and auto sales data.



Global overview

As we moved into the middle of the week, Spanish stocks continued their strong sell-off shedding a further 2.86% as political tensions showed little sign of abating. Italian equities also experienced a tough day on Wednesday with the primary benchmark Index for the Italian Equity Markets the FTSE MIB losing 1.44%. The US equity market continued to track higher; the S&P 500 has now rallied for 7 consecutive sessions, marking their longest winning streak since May. Economic data showed that while private sector jobs grew less in September relative to August, had topped consensus forecasts. The ISM non-manufacturing index has also trounced expectations.


In Asia, efforts at easing by the People’s Bank of China has been driving a rally in Hong Kong stock markets, the bank has decided that reserve requirements in the banking sector should be reduced.

On Thursday, European Bourses ended the session largely in the green. The sell-off in Spanish equities rebounded with the IBEX 35 gaining 2.51% on the day. This came after news emerged that Spain’s Constitutional Court has suspended a session of the Catalan Parliament due to take place Monday.

In the US, the Standard & Poor (S&P 500) and the Dow Jones once again rallied to fresh highs, stemmed from hopes for improved economic activity and hopes for tax cuts to be implemented. Sentiment in Asia was positive with all major bourses in the green. On Monday, China returns from the Golden Week Holidays, but South Korea and Japan will then observe a market holiday.


Australia

Australian markets finished marginally higher with its first weekly gain in three weeks. The S&P /Australian Stock Exchange (ASX) 200 rose 0.5%, mostly driven by the financial sector and the mining sector. Meanwhile, the Australian dollar finished the week trading at US 77.55¢, its lowest level since July. The currency continues to fall following poor retail sales data.

According to the Australian Bureau of Statistics, sales fell 0.6% in August, short of the expected 0.3% rise. In addition, The Reserve Bank of Australia held its cash rate target at 1.5% at its meeting on Tuesday, the fourteenth straight month without any change.

Europe

This morning, world stocks are selling off for the first time in eight days, as jitters about Catalonia’s push to separate from Spain returned to Europe and bets on higher US interest rates sent the dollar to its highest since level since mid-August. Spanish stocks were sent tumbling as a Catalonian official said the region's parliament would meet on Monday in defiance of a ruling by Spain's constitutional court. Attention is also focused on the next monthly instalment of US jobs data, due out at 12:30 Greenwich Mean Time (GMT) Economists polled by Reuters expect the figures to show 90,000 new U.S. jobs were created in September, down from 156,000 in August. It will also show how hurricanes Harvey and Irma affected the labour market.


Please see below the weekly return of the major indices as at 12:00 GMT Friday 6th October:

S&P 500 +1.30%

FTSE 100 +2.05%

EuroStoxx 600 +0.54%

Topix (Japan) +0.74%

Sensex (India) + 1.53%

*Chinese markets were closed for a public holiday this week


Commodities

Bonds

Bond market returns have sold off over the week as the possibility of rate increases and strong equity market returns have led to outflows. At the time of writing, the US 10 Year treasury Bond is down 0.14%, the German 10 Year Bund is down 0.15% and the UK 10 Year Treasury is down 0.25%


Gold

The strong dollar continues to weigh on the gold price (there is an inverse relation between the US dollar and gold). The potential for a US rate hike in December is a major blockade for the gold price and whilst the current risk on environment continues, the gold price is likely to remain muted.

At the time of writing the gold price is $1,272, down 1% over the period.


Crude Oil

Crude Oil experienced a week of profit-taking as the return of oversupply concerns led the market lower, snapping a multi-week bull run that was Brent's longest in 16 months. After slipping to a low of $49.98 during the week, crude oil rallied and at the time of writing West Texas Intermediate (WTI) Crude trades at $50.28 per barrel, down 2.7% over the period. $50 is considered the bull/bear line and this is where a tug of war comes into play between supply and demand.


Currencies

The dollar continued to strengthen this morning and is on track for its fourth consecutive week of gains as investors continued to cut their short bets against the greenback on a growing view that bond markets have under-priced the extent of US rate increases. At the time of writing, the dollar index, which measures the greenback's value against a basket of six major currencies is up 0.97%.

The pound has slipped to a one-month low against the US dollar after rumblings of a plot by MPs to unseat Theresa May burst into the open. Sterling has dipped to $1.30 mark after reversing a period of strength over the last few weeks that had seen it reach its highest level since the Brexit vote, a decline of -2.49% versus the dollar over the period.



Portfolio changes

We sold our holding of CF Eclectica within the Sterling models. CF Eclectica was purchased to protect the portfolio during equity market sell-offs however, the fund was placed under review after a period of persistent volatile returns. Following am announcement that the fund was under a threat of closure, we sold our holdings and will keep the proceeds in cash pending a review of the sector.


Issues under discussion

This week has been another tumultuous week for global events. We witnessed the mass shootings in Las Vegas and a separatist referendum is Spain which, as well as been banned by the government could be a threat to the European Union. In the UK, Theresa May’s leadership is under threat and Brexit negotiations have stuttered. As these issues remain, there will continue to be a high level of uncertainty in the markets. We remain diversified and are closely evaluating the risks to the portfolios.





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