Weekly Market Recap: 2nd March 2015

Stellar month for equities….

Most of the major equity indices moved higher last week despite mixed economic data and speculation that the US Federal Reserve could move on rate hikes this summer. Last week capped a stellar month for equity markets, with gains of 5-7% across the major indices. The FTSE Eurofirst 300 Index rose 2.71%, bringing the monthly gain to 6.7%. In the US, the S&P 500 gained 5.5% in February, recouping all of the losses sustained in January.

Draghi has European equity markets salivating….

Over the last few years I have written on the pavlovian response to monetary policy that we have observed in financial markets. We have seen it in the US, Japan and even in China last year. Against this backdrop I wrote in my outlook for the year ahead that: “In the context of this precedent, European equities should benefit if the ECB finally takes out the big guns and starts buying the sovereign bonds of member states.” The FTSE Eurofirst 300 is up 18.29% YTD, a further sign that financial market participants continue to be driven by central bank policy.

Government bond yields move lower….

The performance of government bonds paints a less sanguine outlook for the global economy, inflation and interest rates. The German 10-Year government bond yield hit a record low of 0.28% on Thursday before closing the week at 0.33%. In the same week that the European Commission warned of the imbalances in the Irish economy, notably the high level of public and private indebtedness, the yield on the Irish Government bond maturing in 2024 fell 0.19% to 0.79%. A year ago, the yield on this bond was 3.09%!

Brent Crude: biggest monthly gain in six years….

The price of a barrel of Brent crude closed the week at $62.58, up almost 17% in February, the biggest monthly gain in six years and its first positive month since June of last year. However, the spread between the Brent Crude Oil benchmark and the WTI Crude Oil benchmark widened significantly over the month, with a supply glut in the US keeping a lid on any price increase for WTI crude oil.

Week Ahead

European equity markets have opened mixed this morning after a positive session in Asia overnight, with equities boosted by an interest rate cut from the People’s Bank of China.

Key macro data includes purchasing manager index (PMI) reports from around the globe, retail sales data and the key non-farm payrolls employment report from the US. The second estimate of fourth quarter GDP for the Eurozone will be released on Friday, expected to be in line with the previous estimate of 0.3% growth over the quarter. The monetary policy meetings at the ECB and the Bank of England on Thursday will be keenly watched, but no change in policy is expected. Mario Draghi will be pressed further on the mechanics of their bond buying programme which begins this month.