“It’s not so much an election, as a sort of competition to find the second worst person in the world.” (Frankie Boyle – Comedian – discussing the US Presidential Election).
A welcome lack of negative surprises – economically and geopolitically speaking – coupled with yet more central bank largesse made for a broadly positive market backdrop in quarter three. Among the various manifestations of investors’ renewed enthusiasm for risk assets were the strong flows into emerging markets, where the gain on the global EM equity benchmark eclipsed that of its developed market counterpart by a meaningful margin.
While this shift to “risk-on” was accompanied by a modest reversal in core government bonds (Gilts excepted), credit and emerging market debt delivered useful gains thanks to a sizeable narrowing in yield spreads. Elsewhere, broad commodity indices lost ground and Sterling extended its post-Brexit decline on the foreign exchanges.
Away from the markets, meanwhile, what must surely be the most intriguing / amusing / disturbing (delete as appropriate) US presidential election campaign in living memory (ever?) continues to play out in front of an increasingly bemused global audience. Though it would appear that the impact of the proceedings on the financial world has to date, been negligible, we note with some interest that the quarter under review was only the second in which US stocks underperformed the global developed market average during the past four years. Coincidence?
Equities
Equity markets’ strong start to the period reflected positive surprises from a series of data across the major economies during its opening fortnight. Purchasing Manager Indices (PMIs) for both the manufacturing and service sectors in the US, Eurozone and China were not only on the right side of 50 – i.e. signaling continued expansion – but also exceeded analysts’ consensus estimates across the board, as did the all-important jobs data. Though subsequent releases were more mixed relative to their forecast outcomes (Fig. 1), these early numbers went a long way to allaying fears of a slowdown in global activity that had crept into
the collective market mind-set during the previous quarter. At the same time, and rather perversely, investors were also encouraged by the Federal Reserve’s decision to maintain US interest rates at prevailing levels. With the timing of any rise being data-dependent, this suggests that the Fed is… decision to maintain US interest rates at prevailing levels. With the timing of any rise being data-dependent, this suggests that the Fed is… MORE >>
| Index | 3rd Quarter | YTD |
|---|---|---|
| MSCI World ($) | 4.38% | 3.78% |
| MSCI World | 3.11% | 0.43% |
| MSCI World | 6.78% | 17.94% |
| MSCI World (local ccy) | 4.28% | 2.28% |
| S&P 500 | 3.31% | 6.08% |
| FTSE UK All Share | 6.82% | 9.03% |
| FT Europe Ex-UK | 4.39% | -5.79% |
| FT Europe Ex UK ($) | 5.59% | -2.53% |
| Japan Topix | 6.18% | -14.51% |
| FT Pacific Ex-Japan | 7.80% | 10.97% |
| MSCI Emerging Markets ($) | 8.32% | 13.77% |
| MSCI Emerging Markets | 7.00% | 10.09% |
| MSCI Emerging Markets | 10.80% | 29.28% |
