Weekly Market Recap: December 15th 2014

Market Recap

Global quity markets moved sharply lower last week, core government bonds were in demand and volatility jumped. While the slide in the price of oil continues to show little sign of letting up, adding to the unease among investors was the political uncertainty in Greece, weak economic data from China and a lower than expected take-up of cheap funding by European banks under the ECB’s TLTRO programme.

Sharp sell-off in equities: After a volatile week, the sell-off in global equity markets intensified on Friday as the price of oil continued to make new lows, raising concerns about the implications for energy-related shares, high yield bonds and certain economies, like Russia. Some of the major equity indices in the US and Europe suffered their worst weekly losses since 2011. The S&P 500 fell 3.5% for the week while the German DAX Index and the UK’s FTSE 100 Index dropped 4.88% and 6.56%, respectively. These declines paled in comparison to the Greek ASE Index which fell 13% on Tuesday, the biggest one day drop since 1987, and closed the week down 20%.

Bond yields move lower: Meanwhile, government bond prices moved higher last week driving yields in the Eurozone to new record lows. The German 10-Year government bond yield closed the week at 0.64%, while the yields on German bonds with a maturity of four years or less are all in negative territory.

Volatility: 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 78% last week, the largest weekly increase since 2010. Currently at 21.08, the so-called ‘fear index’ is still some way off the 31.06 reached during the October wobble.

Week Ahead

Key macro data for the week ahead includes reports on inflation, industrial production, retail sales as well as a host of PMI surveys from around the globe that will provide an update on the performance of the major economies in the fourth quarter.  In Europe there are reports on the balance of trade, inflation and the latest ZEW Economic survey from Germany. There is a host of data released from the UK including inflation, retail sales and the labour market, as well as the minutes from the Bank of England’s most recent monetary policy meeting. The Bank of Japan will have their final monetary policy meeting of the year with no change expected while the US Federal Reserve’s monetary policy meeting will be centre stage.