Weekly Market Recap: 19th August 2014

Market Recap

Global equities were higher last week despite a raft of weaker than expected economic reports and no material improvement in the geopolitical landscape. The Eurozone economy recorded 0% GDP growth over the quarter while Japan posted the largest quarterly decline since the devastating earthquake and tsunami in 2011, albeit largely expected following the front loading of spending in the first quarter. While equity markets delivered strong performance last week the real story was in the bond market, most notably the German 10-Year government bond yield breaking below 1% for the first time. Peripheral government bond yields fell further with the Irish 10-Year yield closing down 24bps at 2%.

Week Ahead

European equity markets have opened higher following a positive session across all of major equity markets yesterday.

Key macro data for the week ahead includes flash global PMI surveys from the Eurozone and China, a useful leading indicator of what we can expect from these economies in the third quarter. The raft of housing reports throughout the week will provide an update on the US housing market. There is inflation data from Germany, the UK and the US. The Bank of England and the US Federal Reserve will release the minutes from their most recent monetary policy meetings, providing further insight into the views of the committee members.

The annual symposium held in Jackson Hole, Wyoming will begin on Thursday, with central bankers, policymakers and academics meeting away from the demands of their everyday work to discuss this year’s topic “Revaluating Labour Market Dynamics”. The speeches on Friday from the Fed’s Janet Yellen and the ECB’s Mario Draghi will be in focus. In the US, one could ask the question whether the current unemployment rate actually reflects the true unemployment rate given the nature of their benefits system and the drop in the labour participation rate. While in Europe, persistently high unemployment could actually be because of structural unemployment, which may not come down as fast when the economic recovery strengthens. Then there is the Bank of England who are puzzled by the fact that wage growth has been weak even as unemployment has come down much faster than expected. So there is plenty of dinner conversation!