This document is intended for professional advisers only and should not be relied upon by any persons who do not
have professional experience in matters relating to investments.
Weekly Market Update for 16th September 2013
Index
Over the
period
2013
Index
06-Sep-13
13-Sep-13
FTSE 100 index
0.56%
11.63%
Gold $
1,367.85
1,321.05
FTSE 100 TR
0.58%
15.00%
Oil $ (WTI)
110.53
108.21
S&P 500 TR
2.02%
19.63%
BoE base rate
0.5
0.5
NASDAQ TR
1.71%
23.75%
14-Jun-13
21-Jun-13
DJ Euro Stoxx 50 Cap
TR in EU
3.06%
11.35%
Hang Seng
1.53%
4.64%
FTSE APCIMS Indices
Value
Period
change %
MSCI Emerging
Markets TR
2.47%
0.88%
Income TR
2625.11
0.42%
Gold $
-3.42%
-20.20%
Balanced TR
2675.97
0.51%
Oil $ (WTI)
-2.10%
17.85%
Growth TR
2696.39
0.57%
UK
The UK unemployment rate fell slightly to 7.7% in July (consensus: 7.8%). This measure, published using
Labour Force Survey data (LFS), is set to be in the market spotlight, since the BoE announced that it would
use it as a threshold for its Forward Rate Guidance framework. It said that it did not intend to increase the Base
Rate until the unemployment rate was at or below 7.0%. This fall in the unemployment rate is likely to raise
concerns that the rate will decline faster than the current BoE forecast (it expects the unemployment rate to be
7.1% by Q3 2016), therefore leading the MPC to raise rates faster than its current guidance for 2016.
The RICS house price balance rose further in August, to its highest level in approximately seven years. The
headline price balance rose to 40, from 37 in July. The increased optimism was evident across the survey, with
the new buyer enquiries balance jumping to 66 (from 54). The agreed sales balance rose to 61 (from 37) and
the price expectations balance increased to 45 (from 37). Survey respondents remarked that government
measures designed to stimulate the mortgage and housing market such as the Funding for Lending Scheme
(FLS) and Help to Buy had helped spark the improvement in activity.
Europe
European Central Bank President Draghi has given his support to a European Union banking union following
dissent led by Germany over the proposals for centralising control of failed lending institutions. German
Finance Minister Schaeuble has pushed again for sovereigns to keep control and responsibility of their failing
banks and was one of the key voices against a European Commission plan to create a 55bn euro fund to help
assist indebted banks.
Danone has begun an investigation into whether its representatives have made payments to hospital staff in
order to sell its baby formula products. Unidentified sources have stated that Danone paid hundreds of
thousands of yuan each year to a variety of doctors and nurses. The payments were in the form of sponsorship
fees for product sales. This is the latest in a long line of problems for Danone who was fined 172 million yuan
for price fixing milk.
Italy’s largest phone company Telecom Italia SpA postponed a plan for its board to vote on a reorganisation as
the largest shareholders attempt to work out an agreement over the stock’s ownership. All parties are
attempting to put through the deal to avert an additional cut to its debt rating placing the company in junk
status.
US
Retail sales in the U.S. rose less than forecast in August as the biggest part of the economy struggled to gain
momentum. The 0.2% increase was the smallest in four months and followed a revised 0.4% July gain that was
bigger than previously estimated, the Commerce Department reported today in Washington.
Companies created 169,000 jobs last month, fewer than economists projected, and gains in the previous two
months were revised down. Unemployment fell to 7.3%, the lowest since December 2008, as workers left the
labour force. August and July were the weakest back-to-back months for payroll gains in a year. The slower
progress in employment has also been accompanied by limited income growth. Disposable income, or money
left over after taxes, increased 0.8% in July after adjusting for inflation, according to the Commerce
Department.
Wholesale prices in the U.S. rose more than forecast in August, reflecting higher costs for food and some fuels.
The 0.3% increase in the producer price index followed no change in the prior month, a Labour Department
report showed today in Washington. The median forecast in a Bloomberg survey called for a 0.2% gain. The
core measure, which excludes volatile food and fuel costs, was unexpectedly unchanged from July.
Thematic
This week’s meeting of the US Federal Reserve and the anticipated reduction in their asset purchase program
by $10bn a month resulted in a 5.5% fall in the spot gold price over the week, hitting levels that it last saw at
the beginning of August. The easing of imminent military action in Syria also helped to push the gold price
lower over the week with a further knock on effect to both Brent and WTI spot prices which both fell over the
week. Despite falls in the majority of base metal prices over the week we saw an outperformance of the
diversified mining equities as investors continue to reward the companies for efforts being made to curtail
costs.
Technology stocks in general helped to push the US markets to a second straight weekly rise although the
much anticipated announcement from Apple of the release of its new iPhones was the standout disappointing
© Brooks Macdonald Asset Management
mover over the week as the shares fell over 6% as investors questioned both the upgraded handset and its
pricing point in an increasingly competitive market.
Far East Emerging Markets
US Federal Reserve talk of reducing its asset buying programme has put emerging market assets under
pressure. EPFR Global, who provide fund flows and asset allocation to financial institutions, report that EM
fund redemptions now stand at $11 billion for the year to date.
Chinese banks are looking to bolster their balance sheets through private capital rather than relying on credit
injections from the government. 12 of China’s 17 listed banks have already announced plans to raise
approximately $69.5 billion. This would enable banks to avoid government bailouts but could restrict economic
growth as banks work through their non-performing loans.
On Tuesday, Chinese shares rose on the back of some positive data. Factory output growth hit a 17 month
high and retail sales rose an annual 13.4% in August, their fastest growth this year. The government has set a
growth target for 2013 of 7.5% but any recovery is likely to be coupled with a reasonable degree of volatility.
The Indian Rupee has hit a series of record lows since ‘taper talk’ from the US Federal Reserve but began
recovering last week. The factors behind this include the incoming governor of the Reserve Bank of India,
Raghuram Rajan, who has boosted market sentiment through a series of reform announcements including
liberalisation of the banking sector.
Last week, Bank Indonesia unexpectedly raised interest rates in response to continued weakness in the rupiah.
The main policy rate and the Fasbi (the rate it pays lenders on overnight deposits) were increased by 0.25%.
The rupiah is now the worst performing emerging market currency since the start of August, falling over 9%
against the US dollar over the period.
Japan
Japanese stocks had a strong start to the week commencing September 9th. On Monday the benchmark
Nikkei 225 Index increased by 344.42 points to 14,205.23 to close the session up 2.48%. The Topix index of all
first-section shares was up 2.19%. The strong demand came in the wake of Tokyo’s successful bid to host the
2020 Olympics and yen weakness combined with an improving global economic outlook. Fresh data also
showed that the Japanese economy grew more than expected in Q2 2013.
Tuesday’s trading was similarly buoyant as Japanese stocks rose 1.54%, extending the previous day’s rally.
The Topix was up 1.47% for the day, closing up 17.22 points at 1,190.22. Hiroichi Nishi, SMBC Nikko
Securities General Manager said “Recent data on both the US and Japanese economies, as well as the
Olympics bid win has changed the game, and scepticism on Abenomics," referring to Prime Minister Shinzo
Abe's pro-spending economic policy. "Prospects for a global economic rebound have allowed for more
confidence in equities markets, which has made the upside direction clearer. The market should stay on a
bullish general trend, accompanied by more yen weakening."
Wednesday and Thursday were days of profit taking, as is to be expected on the back of such strong gains
earlier in the weak. However, the improving global economic indicators, coupled with a strong dollar, limited the
© Brooks Macdonald Asset Management
impact of the profit taking. Both the Nikkei and Topix were flat on Wednesday before they fell 0.26% and
0.41% respectively on Thursday as the dollar weakened to 99.31 yen in Tokyo afternoon trading.
Both indices ended Friday in positive territory, the Nikkei edging 0.12% higher with the Topix up 0.08%. The
benchmark Nikkei 225 index ended the week at 14,404.67, while the Topix ended Friday’s trading at 1,185.28.
The Japanese economy’s growth figures for the second quarter of this year were revised up last week. New
investment was up 1.3 percent between April and June, reversing the initial estimate of a 0.1% decline. For the
same period, Japan’s Cabinet Office gave a growth figure of 0.9%, up from a preliminary reading of 0.6%. The
government also upgraded its baseline economic assessment in a monthly report released on Friday, the
report was expected to give some clue as to whether Prime Minister Shinzo Abe will raise consumption tax in
April next year as planned. The report stated that “the economy is on the way to recovery at a moderate pace.”
Backed by a series of upbeat economic data, Abe now seems more likely to give the final go-ahead for the plan
to raise the 5 percent consumption tax to 8 percent next April.
Fixed Interest
Government bonds enjoyed a mixed week putting an end to almost 12 weeks of persistent falls in value / rise in
yield. US and UK 10 year benchmark government bonds fell 4 and 1 basis points respectively to yield 2.90 and
2.94% pa.
Verizon Communication successfully issued $49 billion in new bonds to fund their acquisition of Vodafone’s
stake in Verizon Wireless. The bonds traded strongly in the secondary market with some of the new bonds
rallying 2% in early trading.
The information in this document does not constitute advice or a recommendation and investment decisions should
not be made on the basis of it.
© Brooks Macdonald Asset Management