The concerns of last week appeared to evaporate as equity markets, despite a dull finish on Friday enjoyed a strong bounce. The FTSE 100 gained over 4%, as did the FTSE euro first 300, the S&P 500 was a modest laggard up around 3%. The Shanghai Composite rose over 4%, as Chinese investors seemed reinvigorated after the New Year.
Bond yields continue to be under pressure, the yield on 10-year gilts is a paltry 1.4%. Yields on US treasuries have stablised for the 10-year at just over 1.7%.
As we said on Friday little seemed to have changed to encourage such a bounce, and it is often noted that bear markets can be defined by having sharp upward moves. Almost all of the companies in the S&P 500 have reported Q4 earnings, the blended decline in earnings, according to fact set, is 3.6%. This is against expectations of a decline of 3.9%. This will be the third quarter of earnings declines.
The oil price, which has caused much in the way of headlines, rose in the middle of the week on speculation of production cuts only to fall back as the news was digested. Speculators appeared to have bought on the rumour and sold on the fact. The Brent crude price finished the week at $32, close to where it started the week.
The big news to affect the UK, and the one that will probably dominate headlines in the coming months is the much-anticipated EU referendum. Boris Johnson confirmed late on Sunday that he would be in the out camp. At present the bookmakers make a yes vote odds on, and one suspect that in the end fear of the unknown will win the day. However it is worth remembering that the UK is one of the largest and best regulated economies in the world, and that whatever the outcome other nations will want to continue to trade with us.
Looking to the week ahead, the focus for the US economy will be homes sales on Tuesday and Wednesday, durable goods on Thursday, and on Friday the second estimate for Q4 GDP. After last months weak durable goods report, hopes are for a modest rise in January. Expectations are for the 4th quarter for the economy to have grown at 0.7%. Likewise the 4th quarter estimates for the UK economy is released on Thursday, expectations are for the economy to have grown in the quarter by 0.5%.
As for the euro area, the focus will be probably on the results of Markit’s flash estimates of February’s purchasing managers surveys. The results are expected to show the euro area economy continuing to expand at a modest pace. Nothing much is scheduled from China this week in terms of macro data.