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Weekly market review

Week ending 21 October 2016


Equities

The UK stock market rose slightly for the week as Thursday’s recovery in the banking sector, with Royal Bank of Scotland leading the pack, helped the FTSE 100 close above the 7,000 mark once more. The banking sector recovery also had a positive impact on the Euro STOXX 600 index, which finished the week up 1.3%. The US stock market traded mostly steady to end the week up 0.4%, following mixed earnings reports and US dollar strength, while in Japan, stocks pared their gains after reported earnings losses and an earthquake in Western Japan.

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Fixed income

A sharp sell-off in UK government bonds last week pushed yields to their highest level since the EU referendum, as they breached 1.2%, before closing the week slightly down. The US 10-year Treasury yield fell 0.5%, taking a break from its impressive recent rise, while the 10-year German Bund yield fell back to near zero, as the European Central Bank’s (ECB) Mario Draghi calmed market fears amid softening inflation forecasts.

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Currencies

The pound rose last week against both the US dollar and the euro. A softer Brexit tone from Chancellor Philip Hammond offered hope to worried investors of a less heavy-handed process for the UK leaving the EU. Largely disappointing US housing data also contributed to the pound strengthening. The US dollar index did, however, rise another 0.7%, as economic data remained steady. The euro moved down 1.0% to a 7-month low against the dollar, as the ECB kept policy unchanged and the tone of Draghi’s comments signalled that low interest rates and quantitative easing will not be stopping any time soon. The Chinese yuan hit a 6-year low, driven by dollar strength and an uptick in outflows.



Commodities

West Texas Intermediate crude oil edged slightly higher to $50.90/barrel after a larger-than-expected decline in US crude oil inventory contended with an increase in oil rig counts. Despite scepticism about the potential Organisation of Petroleum Exporting Countries (OPEC – An intergovernmental organisation of 14 oil-exporting developing nations that co-ordinates and unifies the petroleum policies of its member countires) deal, market participants appear to be more bullish about the future of oil.

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Source: Goldman Sachs Asset Management. Adapted by FundCalibre. This material is for information purposes only and does not in any way constitute financial advice.