What’s happened in markets?

FTSE All Share 0.55 -0.45 5.84 2.84 -6.58 1.81 6.77
Euro Stoxx 50 0.50 3.40 7.94 4.82 -1.34 6.29 8.88
S&P500 -0.68 2.98 9.47 4.22 17.43 14.77 17.55
Japan Topix -0.25 3.95 11.89 6.89 18.21 5.26 10.83
MSCI Asia Pac. 0.22 3.97 20.22 12.20 40.80 11.90 18.51
MSCI Emerg. Mkts. 0.09 3.56 19.57 10.79 32.80 8.89 17.16
Jo’burg All Shares 2.02 6.11 19.18 13.62 19.79 8.15 9.96
UK Gov’t Bonds -1.82 -4.67 -3.77 -5.91 -0.89 4.00 3.25
US Gov’t Bonds -0.75 -1.50 -2.59 -2.46 2.98 5.07 2.63
Global Corp. Bonds -0.61 -1.22 -0.79 -1.77 3.94 6.42 5.76
Emerg. Mkt. Local Currency Bonds -1.20 -0.91 1.69 -1.74 2.91 2.23 6.09

Figures in the respective local currencies as at the end of trading on 19/2/2021.

The UK laid out its roadmap of lockdown restrictions easing, but it was Israeli data that generated the most news. It suggests the risk of becoming ill from the virus dropped by around 96% for those who have had both doses of the Pfizer vaccine, while another study suggested the Pfizer inoculation was around 89% effective at preventing transmission.

This good news was supported by the better-than-expected economic data releases during the week of 15 February. In the US, the January retail sales report showed the strongest monthly rise for six months, although it was likely boosted by the arrival of the last stimulus checks, as well as an easing of some restrictions. However, the announcement of flash purchasing managers’ indexes (PMI) showed the recovery globally remains patchy as although the US posted its highest PMI reading since March 2015 – with services, in particular, coming in above expectations – the Eurozone services index showed the sector continues to struggle under lockdown restrictions, although the manufacturing index remained constant. The US economy is also likely to be boosted further by the next stimulus package, which should be voted through by the House on Friday 26 February, before progressing to the Senate shortly afterwards.

While there are concerns that the additional stimulus may lead to inflation, the latest Federal Reserve (Fed) minutes showed that the US central bank is not overly concerned, with the report pointing to “temporary factors affecting inflation” data releases, such as the base effect from lower oil prices last year. However, the Fed did acknowledge that downside risks over the medium term from the pandemic are now being mitigated by the vaccine and the recent change in the outlook for fiscal support. Risks were also at the forefront of European Central Bankers’ minds as they flagged higher bond yields may result in stock prices becoming vulnerable. As such, its president, Christine Lagarde, noted that the central bank is now closely monitoring the evolution of longer-term nominal bond yields.

Equity markets all ended the week of 15 February in negative territory, apart from the UK (+0.88%). The US (-1.92%) lagged the most. At a sector level, cyclicals fared better than stable earners, with energy (+1.76%), financials (+0.80%) and materials (+0.33%) topping the performance tables. The underperformers were the more interest rate sensitive sectors, such as healthcare (-3.38%), utilities (-2.83%) and consumer staples (-2.32%). As such, value (-0.65%) outpaced growth (-2.33%) given energy and financial stocks currently form a large part of the value index, as they do in the FTSE 100, which also helps explain why UK equities had a good week.

Latest Consensus Forecast
UK GDP (QoQ) 1.0 0.5
UK PMI 49.8
UK CPI (YoY) 0.7
EU GDP (QoQ) -0.6
EU PMI 48.1
EU CPI (YoY) 0.9 -0.3
US GDP (QoQ) 4
US PMI 58.7
US CPI (YoY) 1.4 1.5

What’s happened in portfolios?

The equity allocation of portfolios performed well during the week of 15 February, helped by in particular by solid contributions from our cyclical developed market and emerging market exposures.

The sharp steepening of the yield curve saw bonds generally losing ground, especially longer-dated sovereign and investment grade credit. An exception was high yield debt, which tends to outperform in periods of recovery and reflation. Shorter-dated treasuries also avoided a loss as their yields were well-anchored by the Fed funds rate.

Overall, it was a good week for the relative performance of our bond holdings, given the strong bias we have to shorter-dated bonds, with our short duration high yield positions performing well.

Meanwhile, rising interest rates caused a little bit of pressure for property securities, which can sometimes be quite sensitive to shifts in interest rates. The ongoing cash raise by Target Healthcare continues to temporarily supress the share prices of the two care homes funds, although this is set to close on Thursday 25 February.

What’s happening this week?

23 Feb • EU Consumer Price Index | 25 Feb • EU Consumer Confidence | 26 Feb • US Personal Income