Market Recap: Week of August 10th 2015

Market Recap

Global equity markets were mixed last week, with the major indices in Europe and Asia outperforming their US peers. Bond yields edged up slightly in Europe while the UK 10-year yield dropped 4bps to 1.97%, as the Bank of England’s Mark Carney played down the prospect of a rate hike in the near term. The slide in commodities continued last week, putting further pressure on a number of emerging market countries while also contributing to a more muted outlook for inflation.

Fed Futures imply 58% probability of rate rise in September…..

After disappointing US wage growth the previous week, investors were acutely focused on the monthly payrolls data for any weakness that might persuade the US Federal Reserve to delay their first rate hike in ten years. However, the report failed to deliver for the easing advocates with US Fed futures data now showing an increased probability that the Fed will move at their next meeting in September. Still, we have been here before!

Equity markets in Europe and Asia outperform…..

In Europe, the FTSE Eurofirst 300 closed up 0.13% for the week. The German DAX index was the standout performer, up 1.61%. In the US, the S&P 500 closed the week down -1.25%. The much quoted CBOE Volatility Index (VIX), a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, jumped 10.48% to 13.39. In Asia, Japan’s Nikkei 225 index closed up 0.98%, while China’s Shanghai Composite Index of mainland shares recouped some of the previous week’s losses, rising 2.30%.

Week Ahead

European equity markets have opened marginally lower this morning following a positive session in Asia overnight. The rollercoaster ride in Chinese equities continues, with China’s Shanghai Composite Index of mainland shares bouncing 4.92%.

It is a busy week on the macro front this week with reports on industrial production, retail sales, employment and inflation from around the globe, as well as second quarter GDP data for the Eurozone, Germany and France.  The initial estimate of second quarter GDP growth is published for the Eurozone on Friday with the consensus estimate forecasting a growth rate of 0.4%, quarter on quarter. The PMI data from Markit showed that the Greek drama weighed on confidence in July, but the sharp fall in the Euro has been a positive for exporters.

In the US, retail sales data and the University of Michigan Consumer Sentiment survey will be closely watched, as an indicator of the current state of the US consumer. There is also the latest report on industrial production released Friday. In Asia, China remains in focus, with reports on retail sales, industrial production and fixed asset investment released on Wednesday. Developments in China are worrying and one wonders whether the markets are underestimating the risk of a hard landing.