The UK stock market lost ground during the three months to the end of November both in terms of absolute performance (FTSE All-Share index, -0.6%), but also relative to overseas equities (FTSE World ex UK index, +3.0% (local currency)). Sterling weakened substantially during the period and as a result the return of the FTSE World ex UK index for UK based investors was better still at 5.8%.
In Sterling terms, US equities produced the best returns (S&P 500 Index, +10.0%). The US Dollar strengthened appreciably against Sterling as investors began to recognise the firmer foundations of the economic recovery in the US. Outside emerging market equities, UK equities were the worst performing major equity market.
Gilts returns were strong (FTSE Gilts All Stocks Index +3.8%). By the end of November, the 10 year gilt yield had fallen to 1.93%, which is anomalous with the continued reassuring macro-economic releases being observed in the UK, which suggest that the labour market is beginning to tighten as activity picks up.
A notable feature of the quarter has been the collapse in the Brent Crude oil price which fell 32% to $70.2/barrel. The fall in price, despite increased geopolitical tensions across the globe, may be ascribed to a loss of economic growth momentum in emerging markets and Europe, as well as fewer supply side disruptions than expected. The gold price fell 9.4% to $1167/oz as inflationary pressures eased somewhat due to the drop in the oil price, as well as a fall in other commodity prices such as iron ore and wheat.
Commercial property returns in the UK continue to be strong. Over the three month period, the IPD UK All Property Index returned 3.1%. Vacancy rates continue to fall, rental growth is accelerating and commercial property markets outside London are beginning to recover. All three major segments of the market (office, retail and industrial) are showing progress.