Bond blowout, equities take breather, Scottish Mortgage feels pain
Stocks rally on trade optimism, dip on trade fears – rinse,
repeat. Only, in the US at least, the market just keeps on cranking higher,
seemingly no matter what.
Yesterday, US equities pushed the record highs again and
bonds tumbled, while European stocks firmed around 4-year peaks on hopes and
perhaps signs of real progress on trade following remarks, just before the
London open, that the US and China were in agreement on rolling back tariffs as
part of a managed ceasefire.
There was confusion over exactly what the Chinese official
said, but seemed to be clarified by the US saying the phase one deal would
include tariff rollback. White House ‘sources’ reports later talked of ‘fierce
internal opposition’ with no final decision made.
There a strong sense of the ‘if’ about this. If a first
phase trade deal is done, there is agreement to roll back some existing
tariffs, but only if the deal is agreed. Usual story – mixed reports
really all just noise.
The bulls took it happily. The S&P 500 broke
3090 but closed off the highs of the day, still though at a record high at
3,085, up 0.3%. The Dow and Nasdaq continued their run.
European markets are riding this wave too. The Euro Stoxx
600 has reached its best level in 4 years, and is now only c2% off the all-time
highs. Within this we’ve seen the DAX take a real lead.
Asian equities have been weaker overnight, and Europe is
off to a softer start in early trade.
Bonds were blasted as the risk-on mood took hold of debt
markets. US 10s shot 15 basis points higher to 1.96% on the sell off. Yields
eased off the highs a touch overnight as selling waned.
The blowout in bonds left gold bulls in tatters,
nursing heavy losses. Having looked steady around the $1485 support area, gold
dived sharply to nearly touch $1460. Pressure has eased overnight with prices
managing to climb back to $1470. Bulls will seek to recover the 100-day moving
average at $1477. Failure to test the October lows despite this large selloff
indicates bulls remain, just, in charge. $1460 held – if it goes then the bears
It’s all sparked renewed bid for the dollar. EURUSD
is starting to come under heaps of pressure on the approaches to 1.10 with a
couple of tests around 1.10350.
Bid for risk saw USDJPY push through the 109 barrier and
the 200-day moving average.
Sterling is in a post-BoE funk, not helped by dollar
strength. GBPUSD is testing the bottom of the range at 1.28.
Scottish Mortgage Investment Trust is something of a
quiet hero of the stock market. It’s only cut its dividend once. But it’s entered
one of those sporadic bouts of underperformance which can afflict even the
steadiest. Since the end of March net asset value per share (NAV), rose
but 3.2% compared with 9.9% for the FTSE All-World Index, in total return
terms. To put that in context, over five years the NAV has gained 137.5% vs
86.5% and over 10 years it has increased by 415.1% vs 204.4%. Dividend is flat.
When you look at the makeup of the trust it’s clear why.
The company has invested heavily in high growth tech stocks from the US and
China, which have been stars since the crisis. But lately there has been a
rotation out of growth and into value which has hit returns over the last six
months. A pummelling for Baidu, which was once a very significant holding, has
Interesting comments on the state of public stock markets,
with management saying they are ‘convinced that the long term risk taking,
essential to economic and social progress, is continuing to migrate to private
markets and at an accelerating pace’. SMT looks to be happy to go with the
trend too. The risks of being in unquoted entities have been clearly
highlighted by the Woodford and SoftBank travails. Public markets exist for a
IAG shares came under pressure due
to softer medium terms guidance. The British Airways owner is forecasting
slower capacity growth and weaker earnings potential.
Management now see ASK – available seat
kilometres as a measure of capacity – growth of 3.4% per annum compared to
approximately 6% per annum for 2019-2023 previously guided. ASK growth in 2020
is currently planned to be 3.2%. Average EPS growth is now seen at 10%+ per
annum against the previous guidance for 12% growth, reflecting the slower pace
of capacity growth.