Weekly Market Update: Global equities rebound, US treasury yields pick up, Italy still turbulent
Weekly Market Update: Global equities rebound, US treasury yields pick up, Italy still turbulent
Weekly Market Update: Global equities rebound, US treasury yields pick up, Italy still turbulent
Mon 22 Oct 2018
Read our full Market Update Week 42
Market Update
US indices rebounded this week, leading the pack with a +1.3% gain after the significant correction that investors have seen in recent weeks. US stocks are climbing as tax cuts have lead to significant EPS growth and many companies, including financials, have beaten earnings estimates. The US 10-year Treasury yield closed the week at 3.20%, up from last week. UK stocks were up +0.4% and UK 10 Year Gilt yields fell to 1.58%. Global stocks were up 1.0% in Sterling terms and 0.4% in local terms. European, Emerging Market and Japanese equities rose +0.7%, +0.7% and +1.1% respectively in Sterling terms. Oil fell -3.1% whereas Gold returned +0.6% in Sterling terms.
CIO Analysis
One of the great economic experiments, the Euro, came about for political purposes rather than sound economic reasoning. It was a monumental leap and forced individual to give up their monetary policy tools and let the ECB govern interest rates. It did provide benefits with improved initial currency stability, lower transactions costs and lower costs of borrowing. However, what happens when countries that use the same currency diverge significantly in their fiscal plans? Well the answer is that this was not supposed to happen. Rules are in places around fiscal spending so that countries cannot spend more than they are able to afford to repay. However these rules have been regularly ignored. Now Italy’s populist government is pushing for more spending and a lower retirement age, which iscausing an increase in the country’s cost of borrowing, making it more likely that they will be unable to repay at some point in the future. Greece did a similar thing, and ended up being faced with going bust or going through painful austerity, in the end choosing the latter. However the EU cannot afford to let Italy default as it would likely cause the end of the Euro. Italian politicians know this, so are happy to continue with the game of brinkmanship for now.
David Baker, CIO
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Will the rotation into value continue?
While it remains to be seen how long value leadership will last, many of the drivers that led investors to flock to growth stocks have reversed and now favour value stocks.
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In a sluggish week for equities, equities fell in both local and Sterling terms. US, Emerging Markets and European stocks each fell -0.6% in Sterling terms, however European stocks were up marginally +0.1% in local terms. Japanese stocks rose slightly, by +0.5% in Sterling terms, while UK stocks fell -0.3%. Over the week Sterling fell […]
Recessions. Remember them?
Recent conversations with our clients have often begun with them expressing concern about the possible effects of Brexit on investment portfolios. Given the lack of clarity on how the situation will unfold or what the impacts might be, this is perfectly understandable. But, whilst the near term prospects for the UK economy are undeniably intertwined […]
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