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15 August 2019

15/08/2019

Market Data and Morning Chat

Morning Chat

An aversion to inversion: The yield curve is the shape of the graph defined by the range of bond yields out through the bond durations. The “yield curve” measure takes any two bond yields of different durations and subtracts the longer from the shorter. It normally should be positive, but occasionally inverts or goes negative. An inverted yield curve has correctly forecast six of the last ten recessions, so there’s no surprise markets have reacted poorly to the inversion of the US 2-year to 10-year yield yesterday with European equities down 1¾ to 2½% and the US down about 3%.

Yet wasn’t the tariff news better? Tuesday’s tariff news was indeed better, and there were no significant tweets or disruptions countermanding it. There were however various data releases that kept pressure on longer-duration bond yields. China’s industrial production was only 4.8% not 5.8% as forecast, and their retail sales rose only 7.6% not 8.6% as hoped. German GDP was modestly negative – as expected – thanks to auto sector weakness. European industrial production fell more than expected and 2.1% UK inflation was a bit more than anticipated. Nothing really dramatic, but enough to turn sentiment a little more negative about growth. However…

Anyone know Jive Bunny and The Mastermixers? 30 years ago, their “Swing the Mood” was UK #1. You’d have heard it on analog radio or Top of the Pops. There were only four TV channels, no cable, Sky, internet, iMacs or laptops. Your £2000 mobile weighed a third of a kilo. Massive change. Moreover, the FTSE100 was a quarter today’s level with only a quarter the same constituents. Compounded, it’s generated a 4.7% capital return plus dividends. The UK 30-year treasury however offers only 1.05% per annum for the next thirty years. Certainly seems over-priced thanks to those recent mood swings.

Summer is a time for holidays and the Morning Chat will now duly take a two-week hiatus, returning, fittingly, on Labour Day, September 2nd.

Hong Kong is up on early trading while index futures are pointing to a positive market today
Cisco routes guidance lower leading shares down 7.7% in aftermarket trading
Carlsberg reported a good head on sales up 17% leading profits to bubble up 25% this morning.
US Democrat Nancy Pelosi said no US-UK trade deal if Good Friday Agreement is undermined

Market Data

Selected Global Aggregates (Total returns, unhedged)
MSCI AC World Equities (Local) down -24.88 (-2.01%) at 1,213 (YTD: 11.96%; 5YR: 45.4%)
MSCI AC World Equities (USD) down -199.97 (-2.23%) at 8,757 (YTD: 12.67%; 5YR: 37.9%)
Barclays Global Aggregate Bonds up +1.76 (+0.34%) at 514 (YTD: 7.23%; 5YR: 7.9%)

Selected Equity Indices (Capital returns)
S&P 500 down -85.72 (-2.93%) at 2,841 (YTD: 13.31%; 5YR: 45.3%)
NASDAQ down -242.42 (-3.02%) at 7,774 (YTD: 17.16%; 5YR: 74.1%)
Euro STOXX 50 down -68.46 (-2.04%) at 3,289 (YTD: 9.57%; 5YR: 8.4%)
FTSE 100 down -103.02 (-1.42%) at 7,148 (YTD: 6.24%; 5YR: 6.9%)
CAC down -111.77 (-2.08%) at 5,251 (YTD: 11.00%; 5YR: 25.8%)
DAX down -257.47 (-2.19%) at 11,493 (YTD: 8.84%; 5YR: 26.4%)
Nikkei 225 down -249.48 (-1.21%) at 20,406 (YTD: 1.95%; 5YR: 33.2%)
Hang Seng up +94.14 (+0.37%) at 25,396 (YTD: -1.74%; 5YR: 1.8%)
MSCI Emerging Markets down -4.44 (-0.46%) at 964 (YTD: -0.14%; 5YR: -10.2%)

Selected Government Bond Yields
US 10 Year down -0.01 at 1.57 (began the year at 2.68; 5 years ago it was 2.34)
US 2 Year down -0.01 at 1.57 (began the year at 2.49; 5 years ago it was 0.41)
UK 10 Year down -0.05 at 0.45 (began the year at 1.28; 5 years ago it was 2.33)
Germany 10 Year down -0.01 at -0.66 (began the year at 0.24; 5 years ago it was 0.95)
France 10 Year down 0.00 at -0.38 (began the year at 0.70; 5 years ago it was 1.34)
Italy 10 Year down -0.03 at 1.48 (began the year at 2.74; 5 years ago it was 2.58)
Japan 10 Year down -0.02 at -0.24 (began the year at -0.01; 5 years ago it was 0.50)
Barclays EM Basket down -0.04 at 5.51 (began the year at 6.22; 5 years ago it was 5.33)

Selected Currencies
$ weakened -0.0002 versus € (-0.02%) at 1.1146 ($: YTD: 2.67%; 5YR: 16.7%)
€ strengthened +0.0005 versus £ (-0.05%) at 1.0817 (€: YTD: 2.89%; 5YR: 15.2%)
$ strengthened +0.0003 versus £ (+0.02%) at 1.2057 ($: YTD: 5.41%; 5YR: 27.7%)
¥ weakened -0.3400 versus $ (-0.32%) at 106.1000 (¥: YTD: -3.36%; 5YR: -3.6%)

Selected Commodities
Brent Crude ($/bbl) up +0.33 (+0.56%) at 59.14 (YTD: 11.23%; 5YR: -42.0%)
WTI Crude ($/bbl) down -1.87 (-3.27%) at 55.23 (YTD: 21.63%; 5YR: -42.2%)
Gold ($/ozt) down -4.43 (-0.29%) at 1512.00 (YTD: 17.90%; 5YR: 15.9%)
Copper ($/mt) down -63.50 (-1.09%) at 5765.00 (YTD: -3.35%; 5YR: -15.5%)

Data sourced from Bloomberg as of the close of last trading day.
YTD = Year-to-date return; 5YR = five year return

Nicholas Lowson Senior Portfolio Manager Kleinwort Hambros