After a miserable Monday which saw large declines across all of the major equity market indices, soothing words from ECB President Mario Draghi and his counterpart Mark Carney at the Bank of England helped spur a relief rally for the remainder of the week.
Concluding his speech on Thursday, Mark Carney gave markets a lift with his reassuring ‘I’ve got your back’ message: “In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.” Party time for equity markets!
In Europe, the FTSE Eurofirst 300 Index rose +3.15%. At a country level, the UK’s FTSE 100 Index was the standout performer, up +7.15%, against a backdrop of weaker Sterling. The German DAX Index rose +2.29%. Ireland’s ISEQ Index recouped a large portion of the losses incurred on Monday but still ended the week down -2.18%.
The S&P 500 index ended the week up +3.22%, while the tech-heavy NASDAQ Composite +3.28%. The much quoted CBOE Volatility Index (VIX), the so-called ‘fear index’, a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, plunged -42.66%.
In Asia, Japan’s Nikkei 225 index jumped +4.89%, helped by the weaker Yen. Chinese shares also moved higher last week. China’s Shanghai Composite Index of mainland shares rose +2.74%.
Government bonds moved higher last week. With yields moving inversely to prices, the German 10-year bond yield declined 8bps to -0.13%. The Irish 10-year bond yield declined a massive 38bps to 0.48%. The UK 10-year bond yield declined 23bps to 0.86%, a sign that market participants are expecting a deterioration in the UK economy and more aggressive monetary policy from the Bank of England. The US 10-year treasury yield fell 8bps to 1.46%, as markets now expect a more gradual path of rate hikes from the US Federal Reserve. Japan’s 10-year yield declined 6bps to -0.25%.
Gold remains in favour against a backdrop of increased volatility; the price per troy ounce rose +1.68% last week to $1,335, up +25.75% YTD. The recovery in oil prices continues despite concerns over the growth outlook for the global economy, with the price of Brent crude oil up +4.97% for the week, to $49.02 per barrel.
US equity markets are closed today for the July 4th Independence Day. On the macro front this week, the key US non-farm payrolls employment report released on Friday will be in focus following a pattern of weaker than expected reports in previous months. The Fed will release the minutes from their most recent meeting on Wednesday and Bank of Japan Governor Kurodo speaks on Thursday.