The MSCI Pacific Index rose 1.6% in the week ending 13 February.
Japan’s TOPIX was the region’s strongest performer, returning 2.3%. Export-focused stocks performed well as the Japanese yen weakened to a five-year low against the US dollar—a weaker yen makes Japanese exports more attractive in international markets and increases the value of profits earned overseas. Bank of Japan policymakers signaled that further monetary easing to boost inflation would be counterproductive, as it could trigger declines in the yen and hurt consumer sentiment.
In Hong Kong, weakness in banking stocks and uncertainty over the outlook for China’s economy weighed on the Hang Seng, which delivered a flat return.
Elsewhere, Australia’s resource-heavy All Ordinaries rose 1.1%, helped by rising oil prices, while Singapore’s Straits Times slipped 0.1%, as sentiment was hit by worse-than-expected retail sales for December.
US stocks continued their positive performance in the week to 13 February, as sentiment was buoyed by encouraging employment data, easing worries over Greece and hopes of a ceasefire agreement in eastern Ukraine. The S&P 500 was up 2.0%, the Dow Jones Industrial Average rose 1.1% and the technology-biased Nasdaq returned 3.1%.
On Tuesday, December’s Job Openings and Labour Turnover Survey was released, painting a picture of a strengthening US labour market. The report, which comes after the release of January’s robust employment report, confirmed that US job openings rose to more than five million in December, the highest level since January 2001. The number of people who left their current job—referred to as the quits rate and seen as a confidence gauge for job seekers—was unchanged at 1.9%.
However, weekly jobless claims rose by a higher-than-forecast 25,000 in the week to 7 February, although the broader trend in the data remains positive, showing a steadily improving labour market.
Markets shrugged off disappointing retail sales data released in the week. Overall retail sales fell 0.8% in January, marking the second consecutive monthly decline, as falling oil prices held back spending at service stations. Even excluding gas, however, retail sales were flat, sparking concern that lower fuel prices aren’t translating into a boost to consumer spending.
Meanwhile, consumer sentiment soured in early February, according to the University of Michigan consumer sentiment index, which declined from 98.1 in January to 93.6 in the preliminary February report. The two main subcomponents of the index—current conditions and expectations—both declined.
The fourth-quarter corporate earnings season is nearing an end, with around 75% of S&P 500 companies having reported so far. Results have been lacklustre, with the collapse in oil prices and strengthening US dollar negatively impacting energy companies and exporters.
Technology stocks were the strongest performers in the week, pushing the Nasdaq to a 15-year high, as a strong report by Cisco Systems led investors to conclude that technology demand is picking up. Energy stocks also performed well, benefiting from the rise in oil prices.
The outlook for interest rates looks set to continue to drive market sentiment over the coming months, with increasing speculation that the recent robust employment data will prompt the Federal Reserve to proceed with raising rates this summer.
European equities continued to make gains in the week ending 13 February, with the MSCI Europe Index up 1.0%. Eurozone fourth-quarter gross domestic product (GDP) data was better than expected, supporting investor sentiment, while the impact on markets of Greece’s ongoing clash with its international creditors about a new refinancing programme was relatively muted.
Sweden’s OMX Stockholm 30 (+2.7%) was among the week’s top performers, with the Riksbank the latest central bank to ease monetary policy. Italy’s FTSE MIB rose 2.1%, while Spain’s IBEX 35 and France’s CAC 40 delivered respective returns of 1.6% and 1.5%. The German DAX (+1.1%), the Swiss SPI (+1.0%) and the UK’s FTSE 100 Index (+0.3%) also made gains.
According to Eurostat, eurozone GDP rose by 0.3% in the fourth quarter of 2014 compared with the previous quarter, and by 0.9% on an annual basis, with growth exceeding expectations. While the economic growth picture is still mixed at the country level, there was evidence of increasing consumer demand across the eurozone member states, due in part to a decline in the global oil price.
German GDP growth in the final three months of the year, at 0.7% quarter on quarter, was almost double the level of consensus forecasts. The Spanish economy grew at its fastest rate in seven years, while the Netherlands and Portugal both grew more than expected.
However, growth was weak in France, with declines in manufacturing and construction partly attributable to slow progress on structural reforms. While Italy’s economy flat-lined, this was still better than the third quarter’s contraction in GDP, and proved supportive of Italian equity market gains. Greece’s economy, meanwhile, contracted by 0.2%, suggesting that recent political uncertainty has hurt its growth prospects.
There were some signs of progress in Greece’s negotiations with its international creditors on a new bailout programme, with a meeting of Eurozone finance ministers almost resulting in a compromise agreement—this set the stage for further talks. The end of February is the deadline for Greece to agree on the terms of a new support programme with the Troika of creditors comprising the European Commission, the European Central Bank and the International Monetary Fund.
In the UK, meanwhile, the Bank of England (BoE) released its latest Inflation Report, in which it stated that UK consumer price index (CPI) inflation was 0.5% in December, well below its 2.0% target. The BoE attributed this to the steep fall in wholesale energy prices over the second half of last year. It also said that there is “a risk that the temporary period of low inflation may persist for longer—if, for example, wages react by more than expected to the recent weakness in inflation.”
In the absence of wage declines, however, weak inflationary pressures could help boost real incomes in the UK. BoE governor Mark Carney spoke of the central bank’s expectations of “the strongest real income growth in over a decade” in his post conference question and answer session.
Global Emerging Markets
The MSCI Emerging Markets Index gained 1.1% in the week ended 13 February.
Russia’s RTS rose 10.6%, continuing its recent strong rise, boosted by rising oil prices and hopes of a peace deal to end the fighting in eastern Ukraine.
In central Europe, Hungary’s Bux rose 4.3% amid hopes for further interest rate cuts. Hungary’s economy grew 3.6% in the final three months of 2014 compared to the previous quarter, which was ahead of expectations. A further decline in Hungary’s headline consumer price index in January, to -1.4% year on year, strengthened the case for further interest rate cuts.
The Czech PX 50 was up 4.5%, but Poland’s Wig fell 0.1%. Poland’s economy grew 3.0% in the fourth quarter of 2014 compared to a year earlier, which was below expectations and down from the previous quarter.
In Latin America, Brazil’s Bovespa rose 3.8%, as sentiment was boosted by news of significant reforms to a government student funding programme, and by an announcement by the new chief executive of state-run oil producer Petrobras setting out plans to turn the company around following a recent corruption scandal. Brazil’s currency, the real, rebounded at the end of the week from a 10-year low against the US dollar.
In emerging Asia, the MSCI China Index ended the week 1.1% higher, boosted by hopes for further policy measures to boost growth following a run of weaker economic data releases. India’s Sensex rose 1.3%, helped by positive comments on the outlook for the economy from the country’s finance minister.
Bonds & Currency
The 10-year US Treasury yield rose 9 basis points (bps) to 2.03%, as the market priced in a rise in interest rates this year, despite weak US retail sales data. The German 10-year Bund yield was down 2 bps on the week.
*Source: J.P. Morgan Asset Management
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