Weekly Market Recap: 14th July 2014

Market Recap

Volatility crept back into global equity markets last week after shares in Banco Espirto Santo, one of Portugal’s largest banks, were halted following a sharp sell-off that spread to other markets. The issue relates to concern over the bank’s potential exposure to the non-financial businesses of the Espirito Group, the holding company which missed payments on short term debt last week.  Portugal’s PSI 20 equity index fell over 4% on Thursday while all the major European indices closed lower on the week.

The cautious tone in markets saw strong demand for perceived safe-haven investments such as gold/silver while the 10 Year German Government bond yield fell to 1.17%, close to the all-time low, before finishing the week at 1.21%. The Bank of England and the European Central Bank left monetary policy unchanged, as expected. The minutes from the most recent monetary policy meeting at the US Federal Reserve confirmed that the committee members expect to end their bond buying program by October.

Outlook

European equity markets have opened marginally higher after a positive session in Asian equity markets. After the sell-off last week, the relative calm appears to suggest that the market believes the Portuguese situation is contained.

Key macro data this week includes industrial production and inflation data from around the globe. In Europe, the flash estimate of consumer price inflation is forecast to be 0.5% while industrial production is expected to slow. There is a host of data released from the UK with the focus on the labour market, a key barometer of the level of “slack” in the economy for the Bank of England. The most recent unemployment rate recorded was 6.6% with further improvement expected. US data will be closely watched as investors remain hopeful that the US economy is bouncing back from the slump in the first quarter. The official data release from China on Wednesday will cover the full spectrum of the economy, with GDP expected to have expanded 7.4% in line with the previous quarter.

On the central bank front the Bank of Japan meet on Tuesday and are expected to make no change to monetary policy despite some signs that the economy may not be weathering the impact of the April 1st consumption tax increase as well as expected. Likewise, the Bank of Canada are expected to leave policy unchanged when they meet on Wednesday. Also in focus will be ECB President Mario Draghi’s hearing at the European Parliament, US Fed Chair Janet Yellen’s semi-annual monetary policy report to Congress and Bank of England Mark Carney’s testimony to the Treasury Committee. Investors will be looking for further insight into the timing of any interest rate hikes.