Global equity markets ended the week marginally higher, after the major indices recouped early week losses on Thursday and Friday. Disappointing economic data, including falling inflation across the globe, has once again fuelled speculation that central banks will step back into the fray to support the economy recovery. Investors fretting about a possible US Fed rate hike over the last few months are now hopeful that the Fed will remain on hold till 2016. As well, it is only a matter of time before the ECB expand their bond purchase programme. This is a familiar story.
After a miserable few months for equity market investors, the major indices have enjoyed a strong start in October. In Europe, the German DAX index is up +4.40% since the end of September, with the French CAC 40 index and the UK’S FTSE 100 index up +5.56% and +5.22% respectively.
In the US, the S&P 500 index is up +5.89% while the tech-heavy NASDAQ Composite has rebounded +5.77%. 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, has subsided to a more benign level.
In Asia, Japan’s Nikkei 225 index is up +5.20% month-to-date while China’s Shanghai Composite Index of mainland shares is the standout performer, up +11.09%. The index is still a considerable way from the bubble high reached in April, but signs that a bottom has been reached in the Chinese equity market has helped ease concerns about a hard landing in China.
Speculation of further central bank action helped push the prices of core government bonds higher last week. With yields moving inversely to prices, the German 10-year bond yield declined 7bps to 0.55%. The US 10-year treasury yield fell 8bps to 2.02% while the UK 10-year government bond yield moved down 6bps to 1.80%.
Gold was also buoyed by the prospect of the US Federal Reserve delaying rate hikes till 2016, with the price per troy ounce rising +2.54% last week to $1,180.85. After strong gains in the previous few weeks, oil prices declined last week after oversupply worries came back to the fore.
European equity markets have opened higher following a mixed session in Asia overnight. Official GDP data released from China confirmed the Chinese economy grew by 6.9% from a year earlier. While it is the slowest rate of growth in six years, it was slightly ahead of the consensus forecast of 6.8%, renewing suspicion that the Chinese are cooking the numbers.
On the macro front, flash purchasing managers’ index (PMI) surveys from around the globe will provide an update on the trajectory of the global economy, amid growing concerns over a loss of momentum. There is raft of US housing reports throughout the week and retail sales data for September from the UK on Thursday.
The monetary policy committees at the central banks in Canada, Brazil and Turkey all meet this week. However, the meeting at the European Central Bank on Thursday will be centre stage. While no change in policy is expected, in his press conference following the announcement, ECB President Mario Draghi is likely to talk up the possibility of QE2. A number of regional US Fed Presidents are also on the speech circuit this week.