Market Commentary November 2014
Global equity markets were mixed over the month. Earlier in the period markets reacted negatively to the IMF downgrading its global growth
forecast including sharp cuts in the Middle East, Russia and Japan, whilst sharply upgrading the US. Some markets came back to deliver positive returns for investors following a raft of more encouraging economic data and further stimulus measures announced by multiple central banks. Lower commodity prices adversely impacted selective emerging countries which are more reliant on revenues from materials and energy.
US equity markets provided strong relative returns over the month, as the market pulled back from an early dip. More defensive sectors including consumer staples and health care outperformed, while consumer discretionary and IT lagged the broader market. The US Federal Reserve announced it would be ending its stimulus program, which was widely anticipated by market participants. US unemployment fell to 5.9% in September, lower than expectations.
European equity markets ended the month lower, following worsening economic growth expectations. Industrial production in Germany experienced its greatest month-on-month decline since January 2009 in August. This was hindered by weak demand across Europe and China, as well as trade disruptions with Russia. Interest rates were left unchanged at the European Central Bank meeting. The bank however unveiled plans for its private quantitative easing package which included two years of asset purchases to stimulate the economy. The President later announced that the bank would consider additional stimulus measures if required. Eurozone inflation fell to 0.3% in September, the lowest level recorded in 5 years. 8 member states logged deflationary numbers. Unemployment was unchanged at 11.5% in August, in line with expectations.
UK equity markets suffered marginal losses over the month. UK third quarter GDP fell to 0.7% with the services sector showing the greatest contribution, slightly offset by decreases in mining and quarrying. UK CPI inflation fell to 1.2% in September, its lowest level in 5 years. The fall was largely attributable to lower transport costs and lower prices on recreational goods. Unemployment fell to 6% in August, falling lower than expected. Retail sales fell to -0.3% in September, largely impacted by significant falling clothing and footwear sales. The Bank of England announced no changes at its central bank meeting.
Asian equity markets performed well over the month, led by Hong Kong and Australian markets. Chinese third quarter GDP fell to 7.3%, driven by lower property investment, credit growth and industrial production. This marked the lowest annual growth rate in 5 years. CPI inflation fell to 1.6% in September, almost at a 5-year low. Chinese trade data surprised markets with import and export data much higher than expected. Japanese equity markets recovered early losses following the announcement of aggressive stimulus measures by the central bank. Japanese unemployment fell to 3.5% in August, lower than market expectations.
Emerging market equities ended marginally higher, led by the Emerging Asia region. Further falls in the oil price had a negative impact on more dependent countries, including Russia and UAE. The Russian central bank increased interest rates by 1.5% to 9.5%, in order to combat against currency falls. Poland cut rates by 0.5% to 2%, following more positive economic data. Dilma Rousseff narrowly won the Brazilian presidential election on behalf of the Workers’ Party. Equity markets suffered initially as Dilma was seen as less business orientated, compared to her opposition.
Fixed income markets delivered positive returns for investors, following lower bond yields, leading to higher prices in core government and corporate bonds. This came as central bank minutes generally supported a more hawkish view which pushed out expectations of an interest rate rise. The US central bank confirmed the end to its quantitative easing program, which will cease further bond purchases. Conversely, the Bank of Japan announced it would be buying more government bonds, as part of its additional stimulus program.