Investment Market Overview 3Q (July-Sept) 2018

With thanks to David (DAN) Norman of TCF Investments, we would like to share his market overview covering the period July to September 2018.

Markets Outlook

A number of factors are impacting on market volatility including the Brexit negotiations, the mounting trade war between the US and China and the price of oil.

In basic terms, volatility is a measure of the swing in the value of an item around its mean (average) value. High volatility means the value of an item at any point in time may be significantly higher or lower than the average. In general, investors prefer low volatility. High volatility is linked to high risk as it becomes difficult to predict the value of an item at some point in the future.

The Brexit negotiations have made little progress. There does seem to be finally a recognition that the March 2019 date is in sight and there appears to be a willingness from the European side to enter into serious negotiations. It is still possible that the UK could end up with a “no deal” scenario but the odds seem to be higher that some kind of deal will be cobbled together before March. This will add volatility to the UK equity market.

Equity market volatility has been increased by the US imposing an additional $200 billion of tariffs and China retaliating with $60 billion of tariffs on US goods. If this trade war was to escalate then it could significantly reduce world growth, with a corresponding negative impact on equity markets.

Another factor adding volatility is Oil. Prices hardened in the quarter as the US re-imposed sanctions on Iran and OPEC and Russia ignored requests to increase output. Brent crude at one point touched $82 in September. In October a year ago the price was around $55, so we have seen roughly a 50% increase over 12 months.

Following the Federal Open Market Committee’s recent rise in interest rates, some commentators are expecting three more increases within the coming six months. This may be too many but nevertheless, the trend is clearly for higher US interest rates. There is probably not much change likely in Japanese rates, as we should remember that the overnight rate is minus 0.1% and 10 year JGB rates are close to 0%.

Equities (Shares)

Apart from the UK market (see below), Q3 was a positive quarter for equities. In sterling terms, the US S&P 500 rose by 9.0%; Japan TOPIX by 4.5% and Europe (ex UK) rose by 3.2%. The Emerging markets were affected by the strength of the US Dollar and the weakness in the Chinese equity markets after the trade arguments with President Trump, and so only rose by 0.6%.

The risk to the UK surrounding Brexit related uncertainties finally unsettled the market and the FTSE 100 fell by -0.8% over the quarter which has now fallen back around 8% from its highs. Until a deal is reached (or not) uncertainty will continue to have an impact.

Bonds (Gilts)

Bond markets had a negative quarter with Gilts falling by -1.7%; Indexed Linked falling by -1.2% and Corporate Bonds by -0.1%.

We hope this short update is useful. Should you wish to discuss the potential impact on your investment portfolio then please do not hesitate to get in touch on 0800 043 8341 and we will be happy to discuss.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance. This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. Tax regualtions can change and any figures quoted above are at the date of publication.