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The FTSE 100 is called to open 21 points lower at 7556. Stocks saw another mixed session in Asia Wednesday, with subdued trading volumes, as continuing U.S.- China trade tensions contrast with still-solid economic data to leave investors without a dominant narrative. The dollar stayed near a one-week high after a stronger-than-forecast report on American retail sales; positive signs on U.S. demand for travel added to a picture of a resilient consumer. Futures on the S&P 500 Index were steady after the U.S. gauge slipped amid a slew of earnings results, with sentiment in part dented by President Donald Trump saying he could impose more tariffs on China.
At its recent Annual General Meeting, JP Morgan American Trust voted to approve changes to its investment process. The trust will move towards a more concentrated, active approach, and ultimately a somewhat higher risk approach. This is part of a wider trend we are seeing across active management; fund and trust managers are increasingly moving towards higher conviction portfolios in an effort to differentiate themselves from passive offerings.
How did you start your career in finance? Badly. I started as a stockbroker when the city was still a cottage industry. The broker went bust (it was then acquired by Quilter Goodison!) Two other jobs followed in quick succession with a futile attempt to join a brewery in between.
Following a recent research trip to the US, Nick Wood and Ernst Knacke caught up with Seb Scott to discuss their key findings from the trip and how US equity managers saw things from the other side of the Atlantic.
Signs of a breakthrough on the US/China trade impasse and expectations for lower interest rates resulted in many equity markets ending the second quarter at or near all-time highs. Wall Street led the way with a rise of almost 4% followed by the eurozone and Japan. Asia and emerging markets lagged in dollar terms, though a near 3% depreciation in sterling to $1.27 increased returns from international markets to over 6% for UK investors. This was well ahead of the FTSE 100 which was up 146 approximately 2%) to 7,425.
After the strong start to the year, renewed trade tensions and weaker manufacturing data saw profittaking in May as investors adopted a more cautious stance. The FTSE 100 fell 257 (3%) to 7,161 while Europe ex UK was down 5% in local currency terms, Wall Street 6% and Japan 7%. However, sterling weakness against the dollar – a 3% decline to $1.26 – and the euro and Japanese yen helped cushion losses for UK-based investors. In contrast, bonds appreciated significantly as manufacturing data suggested an increasing risk of recession and earlier than anticipated US interest rate cuts. The US Treasury yield curve again mildly inverted leaving the 10 year yield at 2.1% – below the 2.4% effective rate on Federal funds – while the eurozone and Japanese bond investors continue to face negative yields. The UK 10 year gilt yield closed at a two year low of 0.86% while rising breakeven rates on longer duration index-linked gilts gave a 4% return in May (almost 9% year-to-date). Higher oil inventories resulted in a sharp correction in Brent crude to $64 a barrel. Gold benefitted from unpredictable policy decision-making with the sterling price rising over 5%.
Major stock markets gained between 2% and 4% in April. Better than expected economic news and firstquarter corporate results helped Wall Street to a new all-time high. Returns for sterling-based investors were boosted by the dollar strengthening to $1.29 as the delayed Brexit timetable prompted speculators to close short positions. The FTSE 100 rose 139 points to 7,418, lagging global markets as well as small and mid-sized UK stocks. The oil price was squeezed higher as the US ended sanction waivers on eight major purchasers of Iranian oil.
After a turbulent end to 2018, global equity markets recovered most of their losses in Q1 as the US and China appeared close to a bilateral trade agreement and the Federal Reserve indicated that it would, if necessary, delay normalising monetary policy to avoid recession. The FTSE100 rose 551 to 7,279 - a total return (including dividends) of 8% over the quarter. The broad-based US indices gained 13% in local currency terms - marginally higher than the 12% return on European equities. Japan, Asia and emerging markets lagged at around 6%. For UK investors, sterling’s modest rally to $1.31 depressed international returns by 2%. Global bonds were the major surprise as slower growth prompted a sharp fall in yields and a flattening curve. The German bund yield turned negative again while the decline in yields on 10 year UK Treasuries to 1% meant conventional gilts returned 3% and longer duration index-linked 7%. OPEC’s continuing supply discipline saw Brent crude rise from $54 to $68.
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