Global equity markets continued to move higher last week, with many of the major equity indices closing at new record highs. The FTSE Eurofirst 300 was up 1.8% on Friday after better than expected US employment data while the German DAX index jumped 2.4% to close at a new record high. Japan’s Nikkei 225 Index rose 2.64%, buoyed by the weaker Yen. Meanwhile, government bond yields moved higher as bonds sold off with the German 10-Year government bond yield closing up 7bps at 0.78%. In the commodity markets, oil remains under pressure while the monetary policy divergence theme continues to play out in the currency markets with a strong US dollar gaining further ground against the Euro and the Yen.
Key macro data for the week ahead includes updates on inflation, industrial production, trade and unemployment from most of the major economies as well as a number of important surveys measuring the current sentiment of consumers and businesses. The take up from banks on the second tranche of the ECB’s cheap TLTRO funding will be closely watched, after the poor take up on the first tranche provided a catalyst for the recent market correction.
Retail sales and initial jobless claims from the US this week will also focus investors’ minds in advance of the final Federal Open Market Committee meeting of the year on December 16th/17th. With recent US data picking up, investors will begin to once again focus more on the timing of interest rate hikes and the implications for financial markets. After disappointing third quarter GDP data, the Bank of Japan’s quarterly Tankan survey, an important indicator of business sentiment used in formulating monetary policy, will provide more of an update on the trajectory of the economy.