Market Recap: Week of May 11th 2015

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Market Recap

Financial markets ended a rocky week on a stronger footing, with big gains on Friday pushing the major indices into positive territory for the week, while there was relief for bond investors as yields eased lower. The news of the majority win for the more market friendly conservative government was the initial catalyst for equities and bonds to move higher, followed up by the US non-farm payrolls report that made for the flashing headlines: “goldilocks jobs report”. Job growth was strong enough to provide support for the recovery story, but wage growth was too weak to push the Fed into raising rates in June; not too hot, not too cold, just right!

Outlook: Week Ahead

European equity markets have opened lower this morning, despite a positive session in Asia overnight. The Shanghai Composite Index of mainland Chinese shares rose 3.05%, regaining some of the losses incurred last week, buoyed by a cut to interest rates from the People’s Bank of China.

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. The initial estimate of first quarter GDP growth is published for the Eurozone on Wednesday. The consensus estimate is for the Eurozone economy to post quarterly GDP growth of 0.5%, up from 0.3% the previous quarter.

The Bank of England’s (BOE) monetary policy committee will meet Monday, with no change expected. The release of their quarterly inflation report on Wednesday will provide further insight into the outlook for the economy and monetary policy, as the UK recovery appeared to lose momentum in the first quarter. BOE Governor Mark Carney will speak at the accompanying press conference, with investors keeping an ear out for any clues on the timing of rate hikes, with 2016 now looking more likely for the first increase.

US retail sales and consumer sentiment data for April will be eyed, as investors try to gauge the trajectory of the US economy. The raft of data published from China will also be in focus, as signs of a deeper economic slowdown have only served to push the local equity market higher, on the prospect of looser monetary policy.

ECB President Mario Draghi will give the annual Michel Camdessus Central Banking Lecture at the IMF headquarters in Washington DC on Wednesday, followed by a conversation with IMF Managing Director Christine Lagarde. The Greek drama seems to be nearing a conclusion, although how it ends is still too close to call.

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