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United States
S&P 500 began the week trading in the red but rose on rebounding oil prices, ending with a weekly gain of 1.6% to 1,947. Oil also ended the week up, with Brent up 6.3% at $35.10 per barrel, on the back of expected declines in shale production, uncertainty over Iran’s entrance in the market and despite Saudi Arabia ruling out the production cuts agreed upon earlier last week. The increased correlation between the crude benchmark and equity prices is a sign that the markets are using oil prices as a gauge for the health of the global economy. We predict the oil price will continue trading within a limited range until oil producers meet in March.
On Wednesday, Fed President James Bullard highlighted the declining market inflation expectations as a primary concern with respect to continuing the path of rate hikes for 2016. Later in the week however, positive US economic data surprised markets with annual growth for the fourth quarter increasing to 1%, from the initial estimate of 0.7% and despite expectations for a downward revision. The core consumption expenditure deflator, which the Fed uses as its measure of inflation, rose at an annual 1.7% for the year, causing Fed funds futures to price in higher market expectations of a rate rise in 2016. Consumer spending in January also rose by 0.5% from December, after being mostly flat the previous month and beating expectations of a 0.3% increase. The manufacturing PMI came down from 52.4 last month to 51, its lowest level since November 2012 and below market expectations of 52.3. Despite the overall slowdown in manufacturing, durable goods orders rose 4.9% in January, up from the 4.6% decline last month, showing healthy business investment levels. The positive US data drove the dollar index up against its peers to 98.08 for a weekly gain of 1.5%.
Moreover, the US took the lead in calling on G20 members to make full use of fiscal expansion to boost global demand and avoid manipulating exchange rates, as the IMF came out with several warnings this week over concerns for the global economy growth, despite positive data coming out from the US.
Next week, we are expecting data on non-farm payrolls and the unemployment rate, which will give deeper insight into the health of the US labor market.
Europe
On Monday, the Stoxx Europe 600 index (SXXP) jumped by 1.7% to 331.82, the highest close since 2nd of February, fueled by a rally in commodity shares as prices for oil and metals advanced. However, stocks across Europe on Tuesday fell back from a three-week high, weighted by sliding oil prices and a dreary financial update from mining industry heavyweight BHP Billiton PLC. Nevertheless, European stocks climbed on Thursday and Friday (Dax closed at 9,513.3, Euro Stoxx 50 at 2,929.16), with bank and commodity shares catching a break from previous declines.
On Tuesday, the yield on 10-year German bund (Europe’s benchmark sovereign securities) climbed to almost 0.25%, however due to the increased demand the yield dropped on Friday to 15 basis points.
Germany’s statistics agency said the country’s inflation in February fell to minus 0.2%. That was below expectations for a 0% reading and a 0.4% print in January. The weaker-than-expected result points to the prospect that the European Central Bank President Mario Draghi will push for the bank to ramp up efforts to stimulate inflation in the Eurozone. This data had an immediate impact on EURUSD exchange rate. In fact, Euro depreciated to $1.0935 from around $1.1009.
The data for Eurozone CPI (YoY) (JAN) came in below expectations of 0.4%, reaching 0.3%. Also, the data for Eurozone Manufacturing PMI (FEB) was released, and it reached 51.0 which is less than forecasted 52.0
Next week the data for Eurozone Core CPI (YoY) (FEB) will be published as well as German unemployment rate for February.
UK
The past week saw the FTSE100 rising at 6,096.10, 86 points or 1.43% higher than Monday following the rest of European stock exchanges in the enduring recover after the nosedive started in January. The second data on British gross domestic product released on Thursday confirmed the previous growth rate of 0.5% QoQ, assessing the GPD 1.9% higher YoY.
However, the formal announcement that the UK will vote for the permanence in the European Union on June, 23rd destabilized the forex market. In fact, the pound sterling registered important decreases against all the major currencies. On Monday morning, it was exchanged for a bit less of 1.43 US dollars, while on Friday its value was less than 1.39 dollars for the first time since January 2009. The EUR/GBP exchange rate followed an opposite path closing around 0.788, up from 0.777 on Monday.
During the past week, the yield on the 10 year Gilts decreases by 0.02% to 1.41% compared to 1.43% and 1.71% of one week and one month ago respectively.
Rest of the World
This week saw a return to high volatility in the Chinese stock market, with the Shanghai Composite index suffering its biggest one day drop over a month on Thursday (-6.4%). Markets regained some confidence on Friday, after comments from Chinese officials suggested that there remains room to loosen both fiscal and monetary policy, with the Shanghai Composite rallying 1% and reducing the losses for the week to 3.4%. Many analysts however are increasingly confident that the prolonged weakness of the Chinese stock market may be close to an end, as they noted that since January there has been a considerable surge in shares buybacks, which has been an accurate indicator of the market and valuations bottoming down in 2001 and 2008. The RMB closed the weak slightly weaker versus the USD at 6.54, a 0.3% five-day decline.
In Japan, the Nikkei 225 closed on Friday at a three-week high, up 1.4% for the week. The yield on Japan’s 10y sovereign bonds remains in negative territory, currently at -0.06%. The JPY lost ground to the USD closing the week down 1.15% at 114, with the greenback being pushed higher on Thursday and Friday by better than expected US economic data which may lead the Fed to rise rates earlier than expected.
The Argentinian Merval index was the best performer among global stock markets for the week, with a 9.2% jump which brings its yearly gains to 38.5%. The latest upward sprint was spurred by rumors of a possible agreement between the Argentinian government and the holdout funds. This may finally bring the 2001 Argentinian default chapter to an end, and help Argentina regain much needed access to international capital markets. The Argentinian Peso closed the week at 15,45 against the USD, slipping another 3%. This brings its total depreciation since it was allowed to float freely by the newly elected Macri government in December to 37%.
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