Weekly Market Recap: 15th February 2015

Market Recap

Global equity markets moved higher last week, despite mixed economic data, buoyed by the ceasefire announcement in the Ukraine and hope increased that a compromise will be reached in Greece. While US retail sales disappointed the flash estimate of fourth quarter Eurozone GDP surprised to the upside, up 0.3% on the quarter and 0.9% from a year earlier, on the back of much stronger German output. At the quarterly inflation report press conference Mark Carney reassured investors that the Bank of England has no immediate intention to end the loose monetary policy party and that they stand ready to cut interest rates if deflation was to set in.

Equity markets move higher…..

In Europe, the German DAX Index moved above 11,000 for the first time ever, before closing the week at 10,963, up almost 12% so far this year. In the US, the S&P 500 rose 2.02% for the week while the tech-heavy NASDAQ Composite index hit the highest level since March 2000. While equity markets continue to make new highs one sobering thought is the dramatic collapse in earnings forecasts for the year ahead, driven by energy companies. Also, earnings continue to be driven by cost cutting rather than revenue growth, with record corporate profit margins.

Core government bond yields diverge…..

Meanwhile, the prospect of diverging monetary policy from the world’s major central banks was reflective in the performance of government bonds. Most notable was the jump in the US 10-Year yield to 2.01%. The German 10-Year government bond yield closed the week slightly lower at 0.35%, Greek government bond yields continue to move erratically; after hitting almost 22% midweek the 3-Year bond yield dropped to 15.41% on hope of a compromise that would avoid a Greek exit.

Away from equities and bonds…..

Oil prices moved higher again last week with the price of a barrel of Brent oil closing the week at $61.40, up over 35% since mid-January. The commodity research team at Citigroup hit the headlines last week after writing that the price of WTI oil, currently $52.60 per barrel, could “fall well below $40, perhaps as low as the $20 range.

Week Ahead

European equity markets have opened slightly lower this morning after a positive session in Asian markets overnight. Japan’s Nikkei 225 index closed above 18,000 for the first time since 2007, despite much weaker than expected fourth quarter GDP. US markets are closed today for the Presidents’ Day holiday.

It is a busy week ahead on the economic front with a number of key reports on retail sales, inflation, employment and housing. The flash PMI surveys from Europe, the US and China will provide an update on the pace of expansion in the global economy. The Chinese PMI will be in focus with concern over the scale of the slowdown in their economy. Employment data from the UK and the US will also be keenly watched. In the central bank world, the Bank of Japan will hold their monetary policy meeting on Wednesday while the minutes of the recent meetings at the Bank of England and the US Federal Reserve will provide further insight into the outlook for monetary policy.

Japan bound

There will be no market commentary next week as I’ll be in Japan, a trip I am extremely excited about. I’ll be doing my best to help Shinzo Abe out, contributing to his economic recovery with my consumption of sake and sushi. Of all the cities I am visiting, I am sure that my time in Hiroshima will provide me with the most thought provoking material for my commentary when I return, a city that epitomises the destructive nature of mankind but also the amazing ability of the earth to replenish. On another note my momentum hedge fund trade had a nice little pop last week, as Super Mario sickened the Spurs and a hard fought cup win at the weekend means that a Wembley sign-off for Stevie G is looking more of a possibility. At 5/1 odds on Friday night for Liverpool to win the cup, it will pay for my trip to Wembley!