It’s an odd mix of companies at the top and bottom of the UK Index this week. Losses for Tobacco giants and Telecoms might suggest investors shunning defensives in favour of risk appetite. However, Banks are also languishing, while Miners and Utilities trade higher. What does this say about market sentiment?

So it’s a rather mixed picture. The UK Index itself may be down 100pts, or 1.4%, for the week, but it’s a far cry from a full-on risk-off, ditch everything exposed to global growth (Banks, Miners, Oil) and run for the defensive non-cyclical hills (Telecoms, Tobacco and Utilities). Nor is it the reverse; risk-on, ditch the defensives and buy into all that is exposed to growth. It’s somewhere in between, a bit of both. Much of which can be explained by concerns about global trade, currencies, Brexit and Trump.

On the trade front, there was early excitement about a US-Mexico trade agreement to form a new-NAFTA, and hopes that Canada would join. There was thus hopes that this might signal a softening of trade protection stance that might mean Trump letting up on China. This, however, has since been eclipsed by him mulling an extension of his China-targeted trade tariffs to encompass another $200bn worth of imports, up from the current $50bn. The President also continues to play hardball with Europe on Autos, the sector having another tough week, Germany’s flagship DAX index particularly exposed.

In terms of currencies, suggestions that the EU is open to a unique Brexit deal for the UK is good news for the economy and Sterling (GBP back above $1.30 and €1.11), but not for the UK Index . Because a stronger Pound depresses the perceived value of what internationally operating UK Index companies earn abroad (especially in USD but also in EUR, JPY) once converted into the Queen’s pounds. This in turn depresses the value of profits and dividends, especially when paid in a foreign currency which is the case for many the much watched Miners and Oil who pay shareholders in USD.

The reason why Miners (Evraz +4.1%*, Glencore +2.9%, BHP +1.1%) did well this week, however, was the US Dollar struggling to recover any of the lost ground of the prior week to ten days. This, in turn, has supported prices of commodities like metals and oil, making them cheaper. This, along with Mexico-inspired early-week new NAFTA hopes, has offered an element of protection from today’s revival of China and thus global trade woes.

Oil Majors BP and Shell are largely flat (perhaps slightly down), the benefit of higher oil prices (from a weaker USD) offset by the stronger GBP and concerns that the recent oil price rally may encounter resistance. Banks (Barclays -4%, Standard Chartered -2.8%, HSBC -2.5%, Lloyds -2.2%, RBS -1.5%) have succumbed to intensifying concerns about global growth and Brexit.

While one might expect a risk-off mood such as we have seen today to result in a rush towards defensives like Tobacco, the former has maintained a southerly course (British American Tobacco -8.0%, Imperial Brands -5.5%), hurt by significant global exposure and a stronger GBP.

Utilities like United Utilities +1.4%, Severn Trent +1.4% and SSE +1.0%, however, have done well thanks to their non-cyclical business and generally accepted status as the equivalent of an stock market safe haven when risk appetite goes south. Telecoms, whilst arguably even less cyclical, and thus more defensive, suffered from an extension of downtrends with Vodafone -5.0% on news of M&A while BT -3.0% continued to trade back from ceiling of its current falling channel.

So it’s a mixed close to the week for the UK Index , suggesting investors not quite pinning their hopes on growth or defensives. But this offers hope that the weekend sees concerns digested and good news arise to fuel a fresh rally next week. Don’t forget, bad news on Brexit will probably hurt the Pound, boosting the UK Index , and vice-versa. Trump tweeting something more trade friendly could also give the Miners another fillip, potentially dragging Banks from lows. He could also go on a rant that dampens sentiment further.

I’ve always maintained that I enjoy my job because the view is different every day (via screens rather than panoramic window).  It’s the same for investors, and a weekend can make the all the difference, turning a bad week into a good week (and vice-versa). So if this week wasn’t great for your trading, there is always next week to have another go. And while it could well prove another tough one next week, there is just as much chance of things turning up, thanks to a wealth of market-moving macro data, Presidential tweets and company news that move share prices and present the opportunities to make profits.

To benefit from a concise assessment of what’s going on in the financial markets and next week, and where the trade opportunities lie, get access to our award-winning research now.

Mike van Dulken, Head of Research, 31 Aug 2018

*all price performance calculated intra-day