Market Recap: Week of June 2nd 2015

Market Recap

Most of the major equity indices were in the red last week, following mixed economic data and concern over the Greek crisis. Most notable on the economic front was the downward revision to US first quarter GDP. The US economy contracted at an annual rate of -0.7 percent in the first quarter, according to the second estimate released by the Bureau of Economic Analysis, down from the advance estimate of 0.2%. The Greek drama continued to cast a shadow over markets, with no solution in sight.

Of the major equity indices in Europe the German DAX Index was one of the worst performers, declining 3.40% for the week. In Asia, Japan’s Nikkei 225 index bucked the trend, rising 1.47%. The roller-coaster ride continues for investors in Chinese equities. The Shanghai Composite Index suffered a two-day decline of almost 10% over Thursday and Friday, wiping out gains in the early part of the week. After spiking from 0.05% to 0.80% recently, the German 10-Year government bond yield is back down to 0.49%, declining 12bps over the week, as core government bond yields fell across the board.

Week Ahead

European equity markets have opened marginally lower after a mixed session in Asia overnight. Yesterday, the major global equity indices were relatively unchanged. Chinese equities recouped some of the losses incurred in last week’s sell-off, with the Shanghai Composite rising 4.7%, followed by additional gains of 1.69% overnight.

On the macro front there is a plethora of PMI surveys from around the globe. The ISM’s manufacturing PMI index released yesterday renewed hope that the US economy will rebound from the slowdown in the first quarter. Given the recent weakness in US economic data the key US non-farm payrolls employment report released on Friday will carry even more significance than usual as market participants try to gauge the timing of interest rate hikes. In the UK, the Bank of England’s monetary policy committee meet this week, with no change expected.

There are reports on inflation, retail sales and unemployment from the Eurozone this week, as well as the second estimate of first quarter GDP. The ECB meet on Wednesday with Mario Draghi centre stage. He will no doubt be quizzed on the ECB’s bond buying program, and in particular the decision to frontload its purchases in May and June. The Euro has fallen sharply against the US dollar since then, as the move signalled an increasing flexibility and determination on the part of the ECB in reflating the Eurozone economy.