Market Overview – February 2016

8 Feb 2016

THE THREE MONTHS to the end of January have been extremely volatile as investors grappled with conflicting messages. Some dared to believe that the first interest rate rise in the US for nearly ten years was a signal that the Federal Reserve believed that the economy was robust enough to accommodate some monetary tightening, whilst the continued collapse in the oil price and emerging market currencies argued that global growth is challenged. During this period, Sterling weakened sharply as the Governor of the Bank of England suggested the first interest rate rise in the UK was not likely to occur for some time.

The UK stock market generated a return of -3.8% (FTSE All-Share Index) during the three month period to the end of January. This performance fell well short of that of the FTSE World ex UK (£) Index, which produced a return of +0.3%, which was driven entirely by Sterling currency weakness. In local currency terms, the FTSE World Ex UK Index returned -7.0%. The FTSE All-Share Index’s significant exposure to oil and mining related stocks, as well as the bank sector, hindered performance. In Sterling terms, the US stock market produced the strongest returns (S&P500 (£) Index, +2.1%), although it was much weaker in local currency terms (S&P500 Index -6.2%). For UK-based investors, the worst performing regional equity asset class was Emerging Markets (MSCI Emerging Markets Index, -4.3%).

Gilts produced a strongly positive return (FTSE Gilts All Stocks Index, +3.5%) during the period. At the end of January, the 10-year Gilt yield was 1.6%. More speculative levels of debt (high yield) underperformed Gilts (BoAML £ High Yield Index, -0.4%).

The UK commercial property sector continued to produce positive returns, with the IPD UK All Property Index returning 2.1% during the period under review.

Continued production growth in the face of higher inventories drove the Brent oil price down to $34.70 by the end of January, such that the three month move in the oil price was a negative 30%.

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