Equity markets continue to trade in a tight range after the recent recovery from the poor start to the month. It appears that the current lack of direction is also prevalent in other asset classes: ten-year US treasury yields remain at 2.7%; gold continues to trade just over $1300 an ounce; and the Japanese yen that recently gained some ground against the US dollar has once again stabilised. The US dollar has risen modestly since the start of the year but has done nothing of note recently.
The rally in commodity prices that took place at the start of the year has stalled, but, as yet, the Reuters commodity index (up 10%) has not given back any of those gains. The US transport index has also marked time since the start of the year, a little like the S&P except for a dip at the start of February.
The Vix has rallied since the start of the year, but remains at the lower end of its trading range.
Despite all the Emerging market concerns, the MSCI Emerging Market index remains higher than it was at the start of the year. China has been the catalyst for a majority of the emerging market concerns, and that has been reflected in the Shanghai composite index, which has fallen about 3% since the start of the year. The best performing sectors in Europe so far this year have been banks and construction & materials, both up almost 10%.
The concerns that have been developing for the state of the US housing market were somewhat allayed on Wednesday, as sales in new homes rose 9.6% to a new 5-year high. Over the coming week, investors will once again focus on Europe as we get economic and inflation data for the region ahead of next Thursday’s ECB rate announcement. The threat of deflation in the euro area continues to be the focus of many economists.
The situation in the Ukraine took a small turn today as President Putin put 150,000 troops on stand-by in the region. Political commentary seems to believe that Putin would not want to pit himself directly against NATO, and that he is unlikely to carry through his threat and deploy them within the Ukraine.
Something will once again move asset prices. While the situation in the Ukraine remains unclear, we get a clearer picture of the state of the Chinese economy and we wait to see if the recent US weakness is genuinely weather related. Asset classes will remain volatile, but probably remain within these trading ranges.