Asking the Right Questions
Weekly Market Recap: W/E Ending September 4th 2015
Market Recap
Eurofirst 300 Index -2.86% German 10-Year Yield 0.67%; EUR/USD $1.112; Brent Oil $49.41
Global equity markets sold off sharply on Friday, to close out another miserable week for equity market investors. Fears over a steeper downturn in China and the spillover effects on the global economy continue to weigh on markets, while investors remain on tenterhooks over the possibility of the US Federal Reserve raising interest rates this year.
Dovish comments from European Central Bank President, Mario Draghi, spurred a brief rally on Thursday, before the major equity indices resumed their downward path on Friday, after a mixed US employment report did little to ease concern about Fed rate hikes.
Mainland Chinese markets were closed Thursday and Friday for the Chinese government’s celebrations to mark the end of World War II 70 years ago. The anniversary event is entitled “Victory of the Chinese People’s Resistance against Japanese Aggression and World Anti-Fascist War”, a reminder of the tensions that still exist between these two neighbours!
Equity markets remain under pressure….
In Europe, the FTSE Eurofirst 300 closed down –2.96% for the week; the German DAX index, which has been acutely sensitive to news flow from China, an important export market for German companies, fell -2.53%. After rising 26.73% from the start of the year, the index peaked at 12,374 on April 10th and has since fallen -18.88%.
Figure 1: German DAX Equity Index: YTD Performance
In the US, the S&P 500 index fell -3.40% while the tech-heavy NASDAQ Composite fell -2.99%. In Asia, Japan’s Nikkei 225 index fell -7.02%, with the index now down -14.49% since August 10th. China’s Shanghai Composite Index was down -2.23% in a holiday shortened week.
Tepid economic outlook helps government bonds….
The tepid economic outlook and equity market volatility served to drive core government bond prices higher last week. With yields moving inversely to prices, the German 10-year bond yield declined 7bps to 0.67%. Disappointing UK retail sales data has many thinking the Bank of England’s rate rise may be further away than currently expected, pushing UK yields lower; the UK 10-year government bond yield moved down 13bps to 1.83%. The US 10-year treasury yield fell 5bps to 2.12%.
Week Ahead
European equity markets have opened higher despite a weak session in Asia overnight. US markets are closed on Monday for the Labour Day holiday.
On the macro front, there are reports on industrial production and inflation from around the globe. The second estimate of second quarter GDP data for the Eurozone and Japan will be released on Tuesday, as well as China’s trade data for August, which will be keenly watched. In the US we will get an update on the all-important consumer on Friday with the latest University of Michigan Consumer Confidence Survey.
On the central bank front, the Bank of England will hold their monetary policy committee meeting on Thursday, with no change in policy expected. They will also release the minutes from the August meeting, providing further insight into the views of committee members.
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