Global equity markets were mixed last week after the shock decision on Thursday by the Swiss National Bank (SNB), to abandon their currency peg with the Euro, reverberated across financial markets. The resulting currency moves seemed to dictate the performance of the local equity markets. The Swiss Franc moved sharply higher but the local SMI equity index lost over 13% of its value last week. Meanwhile, European equity markets shot up on Thursday as the Euro weakened while US dollar strength appeared to weigh on US equity markets. The FTSE Eurofirst 300 equity index gained 4.34% for the week as the Euro moved to an 11-year low against the US dollar.
Amidst the increased volatility, government bonds were in demand as yields continue to move lower. The German 10-Year bond yield dropped to 0.46% while the equivalent yields in the US, UK and Japan closed the week at 1.80%, 1.54% and 0.24%. Domestically, the Irish 10-year yield closed the week at 1.05%, yes 1.05%!! It is hard to believe such a dramatic decline from the 14% yield witnessed in 2011, even as Ireland remains highly indebted. It is evident that the decline is less about fiscal credibility and more about ECB monetary policy, but the Irish government have proved to be an efficient tax collector.
US markets are closed today for the Martin Luther King holiday. European equity indices are higher despite a mixed session in Asia overnight that saw China’s Shanghai Composite Index decline by a massive 7.7%. The regulator there is clamping down on margin trading as the outstanding margin loans have almost tripled in six months, which has helped fuel a massive rally in the local Chinese equity market. While investors will be hurt by the short term move it should make for a more sustainable equity market longer term.
There is raft of data released from China tomorrow including fourth quarter GDP growth, retail sales and industrial production. The flash PMI surveys from Europe, the US and China will provide some insight into what we can expect in the first quarter from these economies. On the monetary policy front, the European Central Bank (ECB), the Bank of Japan (BOJ) and the Bank of Canada (BOC) will hold monetary policy meetings this week, while the Bank of England (BOE) will release the minutes of their most recent meeting. However it is all about the ECB this week.