Weekly Market Recap: 28th July 2014

Market Recap

Many of the major equity indices closed the week in positive territory, despite the brief sell-off on Friday. The decline in the German IFO Business Climate Index, for a third consecutive month, was blamed with the German DAX index and French CAC 40 index losing 1.53% and 1.82% respectively on Friday, among the few indices to finish down for the week. Peripheral European equity markets significantly outperformed with Spain’s IBEX 35 Index up 3.4% while the Athens Stock Exchange General Index was up almost 6%. Still, amidst what appears to me like “risk-on” investor behaviour, core government bonds were in demand with the 10-Year German Government bond yield closing the week down 2bps at 1.15%.

IMF Downgrade and Global PMI Surveys

In their latest World Economic Outlook (WEO) Update, the IMF have cut their forecast for global GDP growth to 3.4%, down from 3.7% in April. They have blamed “one-off factors and slower demand in emerging markets”.  While the IMF note that downside risks remain, they are clear that “continued policy efforts are needed to secure a more robust recovery”. Nothing new for investors to digest! The global PMI data released by Markit last week does support the IMF’s view that the global economy is picking up after a disappointing start to the year.

Outlook

European equity markets have opened relatively flat this morning after a mixed session in Asia overnight. It is a busy week on the economic front this week. There is data from Europe on unemployment, inflation and retail sales, while in the US the advance estimate of second quarter GDP will be keenly watched along with Friday’s employment situation report. There is also a host of purchasing manager index (PMI) reports from around the globe which will provide a further update on the direction of the economy. However, the monetary policy meeting at the US Federal Reserve will be centre stage as investors look for clues on the timing of the first interest rate hike. Earnings season continues with more than 140 S&P 500 companies reporting.