Another poor week for equity markets as the unrest in Hong Kong led to a flight from risk assets. The ECB ‘s meeting on Thursday ended being a bit of a damp squib; those who were hoping for some indication that the ECB were on the point of announcing the purchase of government debt were sadly disappointed. It feels that there is some skepticism about the ability of the ECB to expand its balance sheet by the extra 1bn euros they have committed to with the measures announced so far. All major developed markets ended the week in the red, the Hang Seng index fell over 3%, as did the Nikkei 225. The FTSE 100 fell almost 2%, once again falling back to the bottom end of its yearlong trading range. The S&P 500 rallied strongly on Friday to close the week down less than 1%, once again proving more resilient than most developed markets.
Sentiment has taken a battering during the week, encouragingly by the end of the week the Vix ended back below 15 for a fall of nearly 15% over the past 5 days. US treasury yields fell on the week as investors chased safety, the US dollar strength continued, boosted on Friday by better than expected jobs data. As has been the case over the year, investor flow data reported that money came out of equities and into bonds. Merrill Lynch breadth trading rule reported a net 62% of equity markets now trade below their 200 day moving average, indicating to them a trading buy signal. AAII investor sentiment survey reported that bullish investor sentiment fell below its long-term average.
The events in Hong Kong will continue to dominate the headline, but as was the case with the Ukraine equity markets may become more accepted of them. Next week for Europe we get two investor sentiment surveys, firstly the Sentix one on Monday and the Zew on Tuesday. Expectations are for investor sentiment to remain weak. As is the case with most weeks the US provides a constant stream of economic data, but the focus will be on the monthly release of the Federal Reserve minutes on Wednesday. In the UK on Tuesday we get the latest Industrial and manufacturing data for August, and on Thursday the bank of England’s latest interest rate decision where no change is expected.
The months of September and October once again appear to be living up to their reputation of equity volatility.