Weekly Market Update 2018 11 26

Equity Market Volatility
Daily moves in equity markets continue to be aggressive, with regular moves of over +/-1%. Higher volatility has historically come hand in hand with falling markets, and recent weeks have proved to be no exception. Furthermore, underlying the headline market moves, there have been significant variations in individual share prices and sector performance. The most noteworthy of these has been in the “tech” companies that have performed so well over the last several years and have helped to drive markets to all-time highs. Many of the well-known large names such as Amazon, Alphabet (Google), Facebook and Apple have seen falls in excess of 25% from their peaks and given their size have been major contributors to the market’s weaker performance. As interest rates continue to rise, investors will become increasingly discerning over which assets they choose to hold, and the rotation out of the more expensive areas of the market looks likely to continue.

UK Government Borrowing Increases
UK Government borrowing came in higher than expectations, undoing some of the better performances seen earlier in the year. Net borrowing came in at £8.8bn for October, higher than the £6.2bn consensus expectations and was up from the £7.2bn in the same month last year. The increase was mostly driven by higher departmental spending in the month. The figures will be a disappointment to the Chancellor as they come only a month after the announcement of spending giveaways in the Autumn Budget. If the trend continues, the higher level of borrowing will see him breach the near-term spending targets and may constrain the ability of government to provide a fiscal boost to the economy post Brexit, if needed. Nevertheless, the Government is still on course to borrow less than the Office for Budget Responsibility thought they would at the start of the fiscal year.

Oil Price Slide
The Brent Crude Oil price has now fallen over 30% from $86 to under $60 in the space of eight weeks. The fall has been from a combination of both demand and supply fears. The prospect of a slowing global economy and a growing possibility of a US recession stoked fears of decelerating demand growth. Furthermore, resurgent production from Saudi Arabia, Russia and the US have averted concerns over constrained supply from Venezuela and Iran. Additionally, production constraints in the US are also likely to loosen over the coming months as pipelines needed to transport the rush of shale oil are completed in the New Year. Lower oil prices should prove to be a positive for the global economy as inflation will moderate and real consumer purchasing power is enhanced.

Market Data
Index Open Close Change % Change
FTSE 100 7013 6952 -61 -0.87%
S&P 500 2736 2649 -87 -3.18%
Dax 11341 11192 -149 -1.31%
Cac 40 5025 4946 -79 -1.57%
Nikkei 225 21680 21646 -34 -0.16%
UK 10 Year Gilt Yield 1.42 1.38 -0.04 -2.82%