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4th September 2020

04/09/2020

Market Data and Morning Chat

Core holding? Consider two companies, one US, one UK plc. Near-identical market capitalisations. The US company – growing 8.33% long-term with a focussed business and 20% more revenues - trades on a 36.8x trailing Price/Earnings ratio after yesterday’s move but only offers a 0.7% dividend.  You’re buying growth. The more value UK plc grows half as quickly at +4.3%. With 45 times more employees but a much more diverse business it trades on a 32.0x Price/Earnings with a 4.1% dividend that may fall to 3.4% next year. The companies? Apple (+65.0% year-to-date) versus all of the UK FTSE100 (-22.4%). Surprised? Reasonable?

The difficult decisions: This has been the difficult choice.  Apple has the earnings, almost everyone has an iPhone (which didn’t exist prior to 2007) and growth is robust.  UK plc is less expensive (though the Covid-depressed earnings narrow the valuations) and provides an income.  Ah, Apple also has currency risk. True, but you’ve only lost 0.04% on the sterling/dollar exchange rate year-to-date. Yup, 0.04% (sterling’s $1.3268 now, $1.3263 at end-2019). You wouldn’t put just Apple in a portfolio. Maybe you would, but you’d be down 11.1% yesterday alone (though, yes, still up 65.0% year-to-date). Meanwhile, the UK only fell 1.5%
 
 Crash! Boom! Bang! revisited : Was it just Apple you ask? Nope. Across the board US equities had a rough day – notably worse than Europe. None of the data released was really bad, indeed much beat expectations. Initial jobless claims were only 881,000, not the 950,000 forecast (though calculation factors had an impact). Continuing claims were also less-than-expected. The 55.0 services PMI beat the 54.7 expected and July’s 54.8, so good news.  Only the highly regarded ISM services missed – just – at 56.9 versus 57.0 expected. However, given non-farm payrolls today US investors took anticipatory profits. That’s why it’s worth globally diversifying.

Europe’s futures are better today too, up slightly, while the US is down a further ¼-½% or so
 … while the Asian markets are reflecting the US declines though to a lesser extent.
 Oil’s also down slightly today, but recovering, while gold, up ½% today, is recouping lost ground
 Aussie retail sales +3.2% were marginally slower than the +3.3% hoped
 German factory orders this morning are also slower-than-forecast at only +2.8% but up!
 The dregs of yesterday’s US stocks were filled with the recent tech sector high-flyers…
 … such as Nvidia (-14.1%), Advanced Micro Devices (-12.1%) & Fortinet (-11.6%)
 Speaking of high-flyers, International Airlines Group (+6.4%) had a good day…
 …but it was Melrose’s (+12.6%) improving results that pushed it to the top of the leader-board
 Another week of Brexit talks and there’s the same old impasses being cited

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Market Data

Selected Global Aggregates (Total returns, unhedged)
MSCI AC World Equities (Local) down -35.94 (-2.46%) at 1,426 (YTD: 3.67%; 5YR: 69.9%)
MSCI AC World Equities (USD) down -291.48 (-2.72%) at 10,427 (YTD: 4.49%; 5YR: 72.0%)
Barclays Global Aggregate Bonds up +0.22 (+0.04%) at 543 (YTD: 6.21%; 5YR: 22.0%)
 
Selected Equity Indices (Capital returns)
S&P 500 down -125.78 (-3.51%) at 3,455 (YTD: 6.94%; 5YR: 79.8%)
NASDAQ down -598.34 (-4.96%) at 11,458 (YTD: 27.70%; 5YR: 144.6%)
Dow Jones Industrial down -807.77 (-2.78%) at 28,293 (YTD: -0.86%; 5YR: 75.7%)
Euro STOXX 50 down -33.55 (-1.01%) at 3,304 (YTD: -11.77%; 5YR: 3.9%)
FTSE 100 down -90.09 (-1.52%) at 5,851 (YTD: -22.43%; 5YR: -3.2%)
CAC down -22.22 (-0.44%) at 5,010 (YTD: -16.20%; 5YR: 10.8%)
DAX down -185.66 (-1.40%) at 13,058 (YTD: -1.44%; 5YR: 30.1%)
Nikkei 225  down -260.10 (-1.11%) at 23,205 (YTD: -1.91%; 5YR: 30.4%)
Hang Seng down -384.18 (-1.54%) at 24,623 (YTD: -12.65%; 5YR: 18.2%)
MSCI Emerging Markets down -10.05 (-0.90%) at 1,109 (YTD: -0.52%; 5YR: 40.6%)
 
Selected Government Bond Yields
US 2 Year up +0.00 at 0.13 (began the year at 1.57; 5 years ago it was 0.71)
US 10 Year up +0.00 at 0.64 (began the year at 1.92; 5 years ago it was 2.12)
UK 10 Year up +0.01 at 0.24 (began the year at 0.82; 5 years ago it was 1.83)
Germany 10 Year up +0.01 at -0.48 (began the year at -0.19; 5 years ago it was 0.67)
France 10 Year up +0.01 at -0.19 (began the year at 0.12; 5 years ago it was 1.01)
Italy 10 Year up +0.00 at 0.98 (began the year at 1.41; 5 years ago it was 1.88)
Japan 10 Year up +0.00 at 0.04 (began the year at -0.02; 5 years ago it was 0.36)
Barclays EM Basket up +0.02 at 3.76 (began the year at 4.27; 5 years ago it was 5.45)
 
Selected Currencies
$ weakened -0.0008 versus € (-0.07%) at 1.1841 ($: YTD: -5.45%; 5YR: -6.3%)
€ weakened -0.0001 versus £ (+0.01%) at 1.1209 (€: YTD: 5.39%; 5YR: 21.7%)
$ weakened -0.0010 versus £ (-0.08%) at 1.3272 ($: YTD: -0.07%; 5YR: 12.7%)
¥ weakened -0.0500 versus $ (-0.05%) at 106.1600 (¥: YTD: -2.28%; 5YR: 12.0%)
 
Selected Commodities
Brent Crude ($/bbl) down -0.22 (-0.51%) at 42.68 (YTD: -35.74%; 5YR: -12.3%)
WTI Crude ($/bbl) down -0.14 (-0.34%) at 41.37 (YTD: -32.25%; 5YR: -11.5%)
Gold ($/ozt) up +5.79 (+0.30%) at 1933.65 (YTD: 26.98%; 5YR: 72.5%)
Copper ($/mt) down -133.50 (-1.99%) at 6563.50 (YTD: 6.31%; 5YR: 25.1%)
 
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