Global equity markets were mixed last week with stellar gains in Europe on the prospect of a deal being reached between Greece and its creditors while US equity markets lagged, weighed down by a stronger US dollar. The greenback recorded its biggest weekly advance since May, lifted by stronger US economic data and hence the increased likelihood the Fed will reach lift off mode on rate hikes later this year. The moped ride in Chinese equities became even more hazardous, as the early week rally gave way to a vicious sell-off on Friday. For the most part, government bond yields of the major countries moved higher last week.
In Europe, the FTSE Eurofirst 300 closed up 2.90% for the week. Meanwhile, the German DAX index and the French CAC index were up 4.10% and 5.06% respectively. The major US equity indices were marginally negative on the week against the backdrop of a stronger dollar. Japan’s Nikkei 225 index closed at the highest level in eighteen years on Wednesday, before easing back and ending up 2.64% for the week, while the hazardous ride in Chinese equities continued. After early week gains Shanghai’s Composite Index of mainland shares fell a massive 7.4% on Friday.
Despite the noise in Greece, core government bond yields continued to move higher last week. The German 10-Year government bond yield closed at 0.93%, up from the record low of 0.05% in April. Trustees of defined benefit schemes will be glad to see the rise in long dated AAA bond yields; the German 30-year bond yield closed at 1.713% on Friday, up from the low of 0.462% reached on April 20th 2015. A gradual return to normality on government bond yields, without a dreaded equity market blow up, would see funding levels greatly improve.
European equity markets opened sharply lower this morning following a sell-off in Asia overnight. It was almost the mirror image of the euphoric action in markets last Monday, with the major European equity indices down in region of 3-5%. However, the panic appears to be subsiding with the major indices moving off the lows of the day.
Key macro data includes purchasing manager index (PMI) reports from around the globe. In Europe, the key reports this week are on inflation, retail sales and unemployment. In the US, the employment situation report will be keenly watched on Friday, providing an update on the labour market, a key indicator for US monetary policymakers. The Bank of Japan’s quarterly Tankan survey, an important indicator of business sentiment used in formulating monetary policy, will be released on Wednesday. The Greek situation will continue to dominate the headlines and financial markets!