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February 2019 - Market Update

| Market Commentary | By James Timpson

After a dismal end to 2018, investors will have been pleased to see markets back in positive territory in January. The MSCI World index, which measures global equities, managed to recover +7.14%, making it the best month for developed equity markets since October 2015. The pound had its strongest month against the dollar and the euro for a year, gaining nearly 3% against both despite plenty of continued Brexit uncertainty.

In the US, the longest federal government shutdown in the country’s history came to an end on 25th January. After a 35-day stand-off, President Donald Trump conceded, allowing the government to re-open and 800,000 federal employees to return to work, despite not being granted the billions of dollars funding needed for the Mexican border wall. However the arrangement may only be temporary, with Trump threatening to resume the shutdown on 15th February if he doesn’t get his desired deal from Congress.

Italy has fallen into recession for the third time in a decade. The latest figures from the Istat statistics office revealed that the Italian economy shrank -0.2% in the last three months of 2018, following a -0.1% decline in the previous three months, resulting in two consecutive quarters of negative growth. Prime Minister Giuseppe Conte, claimed the disappointing figures were due to the tariff war between China and the US hurting their largest trading partner, Germany. Italy’s government debt of 2.3 trillion euros is the largest in the EU, and the fourth-largest in the world.

Here is the round-up of January market performance. In the UK, the FTSE 100 index gained 3.63%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index, put on +7.61% and +3.88% respectively. In the US, the S&P 500 index climbed +8.01%, while in Europe the Eurostoxx 50 index gathered +5.58%. Japanese stocks measured by the Topix index recovered +4.92%.

Emerging market returns were also positive, as the MSCI Emerging Markets index gained +7.18%. Chinese equities were particularly strong as the MSCI China index surged +11.18%. Latin American equities, measured by the MSCI Latin America index, lifted +9.01%. However Indian stocks ended the month in negative territory, as the IISL Nifty 50 PR index dropped -0.29%.

In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, rose +1.06% and long dated (over 15 years to maturity) gilts picked up +2.10%. European corporate bonds, measured by the Markit iBoxx Euro Corporates index, increased +1.10% while sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, returned +2.04%. In the high yield market, the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index grew +2.24% and +1.83% respectively.

Commodities had a good month, as the S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, leapt +8.99%. Oil had a particularly lucrative month as the price of a crude oil contract rocketed +18.45%. The precious metals had modest returns with the S&P GSCI Gold and Silver indices rising +3.12% and +3.64% respectively. In the agricultural markets, corn and wheat returned +0.40% and +2.63% respectively.

James Timpson CFA, BSc (Hons), IMC

Analyst

(All the above returns are reflected on a local currency basis i.e. they do not factor in any relevant currency movements. Unless accompanied by PR (Price Return), they do include income).

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