20/12/2019 Product News Back to all News & Views
Markets overall rallied higher this week, boosted by positive sentiment on the back of US-China trade talks. Though the deal has not been officially confirmed, comments from Larry Kudlow, a top White House adviser, stated that both sides are close to agreeing a “Phase 1 Deal” which would avoid an escalation in further tariffs, whilst China has agreed to purchase more US agricultural products.

Sentiment also improved on the back of surprisingly strong Chinese economic data. Industrial production advanced 6.2% year on year, rebounding from growth of 4.7% in October and well above the consensus forecast of 5.0%, mainly reflecting stronger growth in the manufacturing and mining sectors.

As of London time 12pm, the US market finished the week stronger by 1.15%, although it should be noted that market gains were moderated by the end of the period after weaker profits from FedEx. The US shipping giant, seen as an economic bellwether, reduced its fiscal 2020 earnings after a weaker global economy, higher ground-shipping costs and the loss of its delivery deal with Amazon. Elsewhere, the Shanghai Composite (China) finished higher by 1.26%, and the European market followed suit, up by 1.22%. The Japanese market was one of the exceptions this week, falling just 0.4%, after data this week revealed further weakness in exports.

The UK market also got off to an incredibly strong start and finished higher by 2.57%, continuing its momentum after a significant Conservative victory in last week’s general election. However, the pound has given up all its gains and is now on track for one of the worst weeks of the year as investors price in more Brexit uncertainty over the next 12 months. Sterling had reached a high of $1.35 last Thursday, but is now more than 2% down to $1.3027, which comes after Prime Minister Boris Johnson reiterated his plan to execute Brexit by the end of 2020, whilst enshrining in law no further possibilities for an extension to the deadline.

In Europe, December looks to have been another soft month for German economic activity. At 49.4, the flash composite output index was unchanged from its November reading and just short of the 50 mark which separates growth from contraction. The disappointing headline was due to manufacturing where the flash sector PMI was 43.4, well below the market consensus. On a more positive note, services remain resilient and saw activity pick up slightly versus the previous month with a reading of 52.

Within Fixed Income, with stronger equity markets, there was less demand for safe haven assets. Yields on major government bonds, which move inversely to their price, rose 12 basis points for US 10-year treasuries, now trading at 1.94%. Equivalent 10-year Gilts and German Bunds saw minor increases to their yields to trade at 0.81% and -0.23% respectively.

For commodities, Oil was the stand out performer, with Brent Crude Oil up 1.64% to finish trading at $66.29 per barrel as of 12pm London Time. In addition to a generally more positive sentiment in markets, the oil price was bolstered by a fall in supply as the US Energy Information Administration reported crude inventories fell by 1.09 million barrels over the last week.

Portfolio Changes

We have decided to remove all the currency hedges that we held in place for our foreign equity exposure. As mentioned earlier, although the UK election has resulted in a Conservative majority, attention now returns to Brexit with a proposed deadline of the end 2020, which is yet to be resolved and thus we hold no strong conviction that Sterling will strengthen further.

Note: The Protection Levels quoted in the above table are correct as at the date shown. The actual Protection Level you receive will be determined by the fund price at the date of investment.

Note: The Protection Levels quoted in the above table are correct as at the date shown. The actual Protection Level you receive will be determined by the fund price at the date of investment.