Markets were volatile over the month, reacting to various news from around the world. Major market indices were still positive over the month, but the level of gains appears to have slowed. The U.S.’s S&P 500 set a record closing high breaching 3,000 points, Britain’s FTSE 100 was flat due to the volatility in the Pound based on a change to pro-Brexit Government, safe-haven assets such as Gold and Gilts lifted as investors become jittery.
Britain’s FTSE 100 was just shy of +1.3% in Sterling terms, and reacted to the new Government and Prime Minister, Boris Johnson, steadfast in pursuing a ‘No Deal’ Brexit which affects the price of Sterling. The Pound was down against the U.S. Dollar (-3.4%), the Euro (-1.9%) and the Japanese Yen (-3.3%), as markets reacted and priced in the increasing probability of a ‘No Deal’, if a new deal cannot be struck with the European Union.
Positively, the FTSE 100 peaked towards the end of the month (+2.0% between 24th and 30th), as the fall in Sterling increases the British main index due to the majority of its earnings being derived from overseas, making them more valuable when converted back into Sterling. Based on Boris Johnson’s leadership and the new cabinet’s Brexit stance, its ultimate outcome is to be determined in October (Q4) 2019. Due to the uncertainty surrounding Brexit, U.K. Gilts were +1.5% and Gold +6.7% over the month, asinvestors sought protective assets.
The U.S.’s S&P 500 benchmark closed above 3,000 points for the first time ever on Friday 26th July 2019, an achievement which demonstrates the U.S.’s longest ever economic expansion, particularly given the effect of the financial Crisis of 2008. It posted a July gain just shy of +4% in Sterling terms, and +0.6% in U.S. Dollar terms.
The U.S. Federal Reserve (“Fed”) chose to reduce interest rates on 31st July 2019, by 0.25%, their first cut since the depths of the 2008 crisis. Markets should have reacted positively, as this was expected and had been priced in. However, the Fed’s Chairman, Jerome Powell, noted that this is likely to be a one-off interest rate cut in 2019, which is contrary to wider sentiment and asset pricing, causing markets to fall in the closing hours of the month. U.S. 10 Year Treasury Bills were +3.5% in Sterling terms, as investors sought safe-haven assets.
Emerging Markets were relatively flat over the month, with the ‘MSCI Emerging Markets’ index +1.2% in Sterling terms and -1.8% in local currency. The main issues surrounding, particularly, China are a final resolution to its Trade War with the U.S. and the ongoing political unrest in Hong Kong, a Chinese territory.
In summary, the month’s activity was broadly positive for markets. However, unresolved and ongoing geopolitical developments combined with worldwide economic output will determine where markets end 2019.