Global equity markets edged slightly higher despite mixed economic data, in what was a shortened trading week as US and European equity markets were closed for Good Friday. In Europe, the FTSE Eurofirst 300 closed up 0.6% while in the US, the S&P 500 finished 0.35% higher. In Asia, Japan’s Nikkei 225 Index finished up 0.63% despite weak PMI data. The week may have turned negative if the markets had been open Friday, with US futures dropping sharply following the weak US jobs report.
Meanwhile, core government bond yields moved lower again last week. After the disappointing US jobs report on Friday, the US 10-year government bond yield dropped to 1.84%. Buoyed by QE, European bonds remain in demand, with yields in Germany hitting new record lows. The German 10-Year government bond sold at a yield of 0.15% on Wednesday before closing the four day week at 0.18%.
The much quoted CBOE Volatility Index (VIX), a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, stands at 14.74, a relatively benign level considering the increasingly uncertain backdrop. The early year volatility has eased after Mario Draghi and the ECB took up the QE mantle from Janet Yellen and the Fed. However, the weaker than expected US employment report last week, following a pattern of weakness in US economic data, is likely to add to market volatility over the coming months.
European equity markets have opened higher this morning after a strong session in Asia overnight, carrying over from the positive performance of US markets on Monday despite Friday’s disappointing jobs report – the “lower for longer” theme may have had a part to play in this!
On the macro front this week there are reports on industrial production, trade, retail sales and inflation from around the globe, as well as a plethora of monetary policy decisions. In Europe, retail sales for February are released on Wednesday. The Bank of Japan’s (BOJ) monthly report on Thursday will provide an update on Shinzo Abe’s reflation recovery, which has been fairly mixed so far, with speculation of more aggressive easing expected from the BOJ. On Friday, the latest inflation data from China will highlight the pace of the drop in inflation that has China’s central bank concerned and ready to act.
Of the major central banks, the Bank of England (BOE) and the Bank of Japan (BOJ) will both hold their monetary policy committee meetings, with no change in policy expected from either bank. Mark Carney and the BOE remain ‘vigilant’ on deflation risk, likely delaying rate hikes with the possibility of more aggressive monetary policy if low inflation was to persist. The minutes from the most recent US Fed meeting will be released and a number of the regional Fed Presidents are making speeches this week. Their comments on the strength of the US economy and the timing of interest rate hikes are likely to make the headlines, adding to market volatility.