Weekly Market Recap: 30th March 2015

Global equity markets were in the red last week, as cracks are starting to widen in the consensus view that the global economy is on an upward trajectory. The spate of data from China last week suggests that the economic slowdown is deepening, the impact of which may not yet be fully appreciated in financial markets. At the same time, the economic data from the US, the so-called shining light of the global recovery, has been less than inspiring recently.

In Europe, the major indices were down in the region of -1% to -3%. In the US, the S&P 500 fell 2.23% for the week while the tech-heavy NASDAQ Composite index lost 2.69%. There was one bright spot for equity investors though. China’s Shanghai Composite Index rose 2.04%, following a gain of 7.25% the previous week. The index is now up 16.59% YTD, as the weaker economic backdrop has fuelled speculation that China’s central bank will become a bigger player at the easy money party.

Meanwhile, government bond yields edged slightly higher over the week, despite a drop in yields Friday. There seems to be an increasing sense of uncertainty developing on how the US Federal Reserve will manage policy over the next six months. The narrative emerging is that the Fed have backed themselves into a corner on a rate hike, something that is creating unease among investors. The reality is that there will never be a right time to raise rates, but they may have to proceed with a rate hike to stave off another financial asset bubble, if we’re not already in one.

Outlook: Week Ahead

European equity markets have opened higher this morning after a positive session in Asia overnight. China’s Shanghai Composite Index continued its ascent, hitting the highest level since March 2008. Remarks by Zhou Xiaochuan, governor of the People’s Bank of China, over the weekend added to speculation of more aggressive monetary stimulus.

On the macro front this week the main focus will be on the final readings of the purchasing manager index (PMI) surveys from a raft of countries around the globe, the flash estimate of Eurozone inflation for March and the key non-farm payrolls employment report from the US on Friday. The decline in Eurozone inflation is expected to ease in March, the consensus forecast calling for a rate of -0.1% in March, down from -0.3% in February and -0.6% in January. The final estimate of fourth quarter GDP growth for the UK economy is expected to be in line with the previous estimate of 0.5%. The Bank of Japan will release their latest quarterly Tankan survey on Tuesday, an important indicator of business sentiment used in formulating monetary policy.