Weekly Market Recap: W/E September 11th 2015

Market Recap

Global equity markets ended the week in positive territory, albeit with continued volatility as uncertainty reigns. Talk of fiscal stimulus from the Chinese authorities was the main catalyst for markets to move higher in the early part of the week.

The picture deteriorated further in the emerging markets, after ratings agency Standard & Poor’s downgraded Brazilian sovereign debt to junk status. This will put further pressure on the Brazilian economy that is coming to terms with significantly lower commodity prices and the economic slowdown in China, amid increasing political instability at home.

As Friday approached much of the focus was on the US Federal Reserve’s monetary policy meeting next week, as markets await the all-important decision on interest rates.

Equity markets stage less than convincing rebound….

In Europe, the FTSE Eurofirst 300 closed up +0.61% for the week while the German DAX index rose +0.85%. Gains in Europe lagged the major indices in US and Asia, after a mid-week rally across the European indices fizzled out.  After being up more that 2% at one point on Wednesday, the German DAX index ended the day up +0.31%.

In the US, the S&P 500 index jumped +2.07% in a holiday-shortened week, with US markets closed on Monday for the Labour Day weekend. The tech-heavy NASDAQ Composite rose +2.96%, moving back into positive territory for the year. 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, moved lower on the week, down 16.55% to 23.20.

In Asia, Japan’s Nikkei 225 index rebounded +2.65%, slightly disappointing considering the index logged its best one day gain since October 2008, up +7.7% on Wednesday. China’s Shanghai Composite index of mainland shares closed up +1.27%, while the Hang Seng index of Hong Kong listed shares jumped +3.18%.

Government bonds mixed ahead of Fed meeting….

Despite gains across the major equity markets, investors remained cautious with no material change in yields last week. European bond yields moved lower, the German 10-year bond yield declining 2bps to 0.65%. UK government bond yields were relatively unchanged while the US 10-year treasury yield rose 6bps to 2.18%, ahead of the Fed’s meeting next week.

On the currency front the Euro gained some ground against the US dollar, rising +1.53% to $1.129. Commodity markets were mixed with the price of copper reportedly benefiting from the prospect of stimulus efforts in China, while the slide in oil prices continued. The price of Brent Crude Oil fell -2.65% to $48.10 per barrel. Goldman Sachs said last week that crude oil could fall to $20 a barrel, albeit not their base case. However, they did say in March 2008 that $200 a barrel was a possibility!

Week Ahead

European equity markets have opened marginally higher, despite a mixed session in Asia overnight, after mixed economic data from China.

It is a busy week on the macro front this week. In Europe there are reports on industrial production, employment, trade, inflation and the latest ZEW Economic survey from Germany. There is a host of data released from the UK and the US including reports on retail sales, inflation and housing.

On the central bank front, the Bank of Japan will hold their monetary policy committee meeting on Wednesday, with no change in policy expected, but they may talk up the prospect of further stimulus. The Bank of England and European Central Bank will release their latest economic bulletins. Of course, the US Federal Reserve’s monetary policy meeting will be centre stage.