25th February 2020

Morning Chat

Decline to comment on: Ouch! Yesterday wasn’t great for equities, and Covid-19 was unequivocally the trigger as airline stocks flew lower. While Chinese cases appear to be flat-lining, Italy saw their tally hit 230 – this while the UK and France are at only 13 & 12 respectively. Markets sold off 3½ to 5½%. But context remains critical. Since WWII, equities have routinely seen sell offs with the S&P500 slipping 5% roughly three times a year and 10% about once a year. Moreover, don’t forget only last week many indices were hitting all-time highs. Yesterday’s declines while painful, are not unusual.

Meanwhile bonds yield gains: The Covid-19 scare has prompted concern over growth prospects – especially China’s, South Korea’s and Italy’s directly, but also, more broadly, over production supply chains. Fairly classically, when there’s a rise in investor concern, there’s a retrenchment back to high-quality bonds – such as those of the UK and US – and a strengthening of the dollar. That’s what happened on Monday. US bond yields declined, with the 10-year Treasury falling to a 3½year low of 1.37% - a 0.1% decline on the day – while capital values gained. Bonds elsewhere echoed the moves.  And the dollar? It strengthened too. 

A further golden lining: Gold has also seen a lustrous run.  Let’s face it, when bond yields slip, the opportunity cost of holding gold in an investment portfolio also falls and gold becomes a handy safe haven for investor funds.  Last year, with the tussles over US-China trade relations, Brexit, slowing European growth and more, gold managed to post a double-digit low-teen gain. 2020 opened with gold trading just over $1500/ounce.  It rallied a little further to just over $1550, but the shift over the last few days has pushed the price to $1653 – a 9.2% gain on the year!

Futures take stock and foreshadow ¾ to 1¼% gains (or would that be return stock?)
Distributors Bunzl (+2.7%) delivered a great parcel of earnings and an improved dividend 
The German Ifo business confidence showed a more upbeat business climate than expected…
… with the Ifo expectations survey also better-than-hoped & GDP confirmed at +0.4% over 2019
… Only Angela Merkel’s CDU are really downcast, garnering only 11% of the vote in Hamburg

Market Data

Selected Global Aggregates (Total returns, unhedged)    
MSCI AC World Equities (Local) down -41.60 (-2.95%) at 1,371 (YTD: -0.33%; 5YR: 49.9%)
MSCI AC World Equities (USD) down -304.36 (-2.99%) at 9,886 (YTD: -0.93%; 5YR: 48.6%)
Barclays Global Aggregate Bonds up +1.64 (+0.32%) at 516 (YTD: 0.89%; 5YR: 13.6%)
    
Selected Equity Indices (Capital returns)    
S&P 500 down -111.86 (-3.35%) at 3,226 (YTD: -0.15%; 5YR: 52.6%)    
NASDAQ down -355.31 (-3.71%) at 9,221 (YTD: 2.77%; 5YR: 85.6%)    
Euro STOXX 50 down -152.40 (-4.01%) at 3,648 (YTD: -2.59%; 5YR: 3.0%)    
FTSE 100 down -247.09 (-3.34%) at 7,157 (YTD: -5.11%; 5YR: 3.2%)    
CAC down -237.85 (-3.94%) at 5,792 (YTD: -3.11%; 5YR: 18.6%)    
DAX down -544.09 (-4.01%) at 13,035 (YTD: -1.61%; 5YR: 16.3%)    
Nikkei 225  down -781.33 (-3.34%) at 22,605 (YTD: -4.44%; 5YR: 21.5%)    
Hang Seng up +53.46 (+0.20%) at 26,874 (YTD: -4.67%; 5YR: 8.5%)    
MSCI Emerging Markets down -28.90 (-2.67%) at 1,055 (YTD: -5.32%; 5YR: 6.3%)    
    
Selected Government Bond Yields    
US 2 Year up +0.03 at 1.28 (began the year at 1.57; 5 years ago it was 0.60)    
US 10 Year up +0.02 at 1.39 (began the year at 1.92; 5 years ago it was 1.97)    
UK 10 Year down -0.03 at 0.54 (began the year at 0.82; 5 years ago it was 1.72)    
Germany 10 Year up +0.01 at -0.48 (began the year at -0.19; 5 years ago it was 0.32)    
France 10 Year up +0.01 at -0.23 (began the year at 0.12; 5 years ago it was 0.61)    
Italy 10 Year up +0.00 at 0.97 (began the year at 1.41; 5 years ago it was 1.46)    
Japan 10 Year down -0.04 at -0.10 (began the year at -0.02; 5 years ago it was 0.34)    
Barclays EM Basket down -0.02 at 3.89 (began the year at 4.27; 5 years ago it was 5.06)
    
Selected Currencies    
$ strengthened +0.0018 versus € (+0.17%) at 1.0853 ($: YTD: 3.35%; 5YR: 4.5%)    
€ weakened -0.0019 versus £ (+0.16%) at 1.1919 (€: YTD: -0.89%; 5YR: 14.5%)    
$ strengthened +0.0001 versus £ (+0.01%) at 1.2936 ($: YTD: 2.47%; 5YR: 16.6%)    
¥ weakened -0.3900 versus $ (-0.35%) at 110.7600 (¥: YTD: 1.97%; 5YR: 7.4%)    
    
Selected Commodities    
Brent Crude ($/bbl) up +0.61 (+1.10%) at 56.22 (YTD: -15.36%; 5YR: -8.3%)    
WTI Crude ($/bbl) down -1.97 (-3.70%) at 51.33 (YTD: -15.94%; 5YR: 5.7%)    
Gold ($/ozt) down -36.31 (-2.17%) at 1638.26 (YTD: 7.58%; 5YR: 36.1%)    
Copper ($/mt) down -76.00 (-1.32%) at 5689.00 (YTD: -7.86%; 5YR: -1.7%)    
    
Data sourced from Bloomberg as of the close of last trading day.    
YTD = Year-to-date return; 5YR = five year return