A volatile month ended with equity markets finishing on a very strong note boosted by the Bank of Japan’s decision to move to negative rates, and a better piece of US economic news. Equity markets continue to be jostled between fears of a global slowdown and the hope of central banks adding greater liquidity to the market. This move also brings its own fears of increased risk taking.
The strong end to the week helped the FTSE 100 end the month remarkably close to where it started it. US and European markets did not fare so well and overall, according to CNBC, this was the worst start to the year for major developed indexes since 2010.
The earnings season is now in full swing and according to Factset 40pct of the S&P 500 companies have reported. So far there has been a negative earnings growth of just below 6%, against expectations of minus 5% at the start of the year. The earnings season remains on track to be the third in a row of negative earnings growth. Of the companies that have reported just over 70pct have beat on earnings but only 50pct have managed to beat on revenues. Companies appear to continue to find savings from somewhere.
The oil price, which remains the focus of capital markets, bounced back along with equity markets at the end of the week. This recovery was probably due to short covering on speculation that OPEC may agree something in the way of production cuts.
This week ahead may see volatility return as the results of the January’s Purchasing Mangers surveys are released for several major developed economies. The first of which came overnight from China. Overall the results were close to expectations, and the Caixin Manufacturing Purchasing Managers Index at 48.4, slightly better than forecasts.
Later on Monday in the US we get the Institute’s for Supply Management’s Manufacturing Index reading. The index has fallen over the past seven months from over 53 to 48 in the month of December. A reading below 50 is considered indicative of a contracting manufacturing base. After Friday’s much better than expected Chicago PMI reading, there will be hope that today’s reading reverses this downward trend.
Likewise in the UK it’s a busty week for macro data, on Thursday we get the minutes of the last rate setting meeting and the decision for this month. Once again no change is expected. What is of as much interest to commentators is the vote, and will Mr. McCafferty remain the lone wolf for another month?
As for Europe, later today we receive the latest euro area industrial production data. On Tuesday the latest unemployment rate for the region is released, and on Thursday the ECB’s euro area economic bulletin.