Money Matters March 17th, 2016

Asia Pacific
The MSCI Pacific Index fell 0.6% in the week ended 11 March.
Japan was responsible for much of the regional weakness, with the TOPIX down 1.2% in the week. Japanese exporters came under pressure from worries over global growth and a rising yen as Chinese trade data slumped in February.
GDP data also showed that Japan’s economy had contracted by 0.4% in the final three months of 2015 compared to the previous quarter, which was worse than expected and raised concerns over the effectiveness of prime minister Shinzo Abe’s economic reform programme.
20160201100617Recent economic indicators, including business and consumer sentiment surveys, suggest the Japanese economy has remained weak into 2016. Last week, the latest economy watchers survey for February—a measure of the current mood among Japanese workers that directly serve consumers, such as taxi drivers, hairdressers and waiters—fell to 44.6, down from 46.6 in January. Readings below 50 indicate pessimism while above 50 indicate optimism.
Elsewhere, Singapore’s Straits Times was down 0.3% as worries over Chinese growth hit sentiment, while Hong Kong’s Hang Seng managed a small 0.1% gain for the week.
Australia’s All Ordinaries rose 1.4%, supported by an ongoing rebound in the banks sector, a rise in energy stocks as oil prices continued to rally in the week, and stronger gold mining stocks as the price of gold reached a near one-year high.
United States
US stocks rose in the week ending 11 March, as sentiment was boosted by a recovery in oil prices and some encouraging US labour market data. The S&P 500 rose 1.1%, while the Dow Jones Industrial Average was up 1.2% and the technology-biased Nasdaq ended the week 0.7% higher.
Data released in the week painted an upbeat picture of the US labour market. Jobless claims dropped 18,000 to 259,000 in the week to 5 March, while the four-week average for claims—which smooths through some of the weekly volatility—edged down to 268,000, reaching its lowest level since October. These latest readings followed February’s solid non-farm payrolls report, released in the previous week.
屏幕快照 2016-03-17 4.43.53 PMMeanwhile, a recovery for oil prices—particularly in the first half of the week—led to sharp gains for the energy sector. Brent oil jumped back above USD 40 per barrel for the first time in three months, resulting in strong performance for drillers, refiners and other energy companies.
The fourth-quarter US corporate earnings season is now nearly behind us, with only a few S&P 500 companies left to report. Results have been lacklustre, held back by weakness in the energy sector. However, with signs that the US economy is improving, analysts are increasing their earnings-per-share forecasts for the coming quarters.
Investors are now focused on the Federal Reserve’s policy meeting on Wednesday. The central bank is expected to keep interest rates unchanged and to remain non-committal about the timing of rate rises, with the market currently expecting a 50-50 chance of a rate rise at the June meeting.
The MSCI Europe Index ended a volatile week 0.2% higher as investors digested the latest policy moves by the European Central Bank (ECB).
Peripheral eurozone markets did best from the ECB’s decision to cut interest rates and boost its quantitative easing programme, which investors hope will support the eurozone recovery and further ease the pressure on Europe’s most heavily indebted economies. Italy’s FTSE MIB rose 3.9% and Spain’s IBEX 35 was up 3.2%.
Elsewhere, the market reaction was more muted, with the French CAC 40 0.8% higher for the week and Germany’s DAX gaining just 0.1%. Outside the eurozone, Sweden’s OMX 30 rose 1.0% and Switzerland’s SPI was up 0.3%, while the UK’s FTSE 100 fell 1.0%.
The ECB on Thursday said it would cut its main interest rate from 0.05% to 0% and cut its deposit rate—the rate it pays to commercial banks for overnight deposits—from -0.3% to -0.4%. The ECB also said it would expand its asset purchases from EUR 60 billion per month to EUR 80 billion, and start to buy corporate bonds as well as government bonds to try to boost asset prices and stave off deflation.
142352918250626900_a580x330The ECB’s aggressive action was initially welcomed by investors, with markets soaring and the euro weakening on the news. However, stocks swung sharply lower and the euro climbed against the dollar as investors digested comments from ECB president Mario Draghi that interest rates were unlikely to be cut further.
Markets rebounded slightly at the end of the week, but investors remain unconvinced that further monetary easing will have much of an impact on economic growth, while there are fears that some measures could be counterproductive—for example, cutting deposit rates further into negative territory may make banks less likely to lend rather than more likely, while quantitative easing may be having a detrimental impact on bond market liquidity.
Investors (and the ECB) will therefore be closely watching economic data to see if the eurozone economy is responding to easier monetary policy. At the moment, the data continues to point to a moderate recovery fuelled by consumer spending and stronger business and household lending. This provides plenty of opportunities for individual companies, particularly in domestically-oriented sectors.
However, the region needs faster growth to make a serious dent in unemployment, and investors will probably remain nervous of eurozone assets until they see more convincing evidence of faster growth in corporate earnings and higher corporate investment.
Global Emerging Markets
The MSCI Emerging Markets Index was up 0.6% in the week ending 11 March.
Emerging European markets rallied the most, led by Hungary’s Bux (+3.5%), as a drop in the country’s inflation rate in February raised hopes that the Hungarian central bank would announce additional easing measures this month to boost the economy. The Czech PX 50 gained 2.0% and Poland’s WIG was up 1.7%.
Russia’s RTS gained 3.3% as oil prices continued to rebound, with Brent crude back above USD 40 per barrel. Turkey’s BIST 100 was up 2.8%.
Emerging Asian markets were muted, with the MSCI China Index up 0.4% despite further weak Chinese economic data, with trade figures and bank lending statistics for February both disappointing.
13_13_0574However, investors have been encouraged by comments from China’s prime minister, Li Kequiang, at the recent G20 meeting in Shanghai and at China’s National People’s Congress session in Beijing. At both meetings Li reiterated a commitment to economic reform and raised hopes that further monetary and fiscal stimulus measures could be used to support the Chinese economy in the short term.
Taiwan’s Taiex rose 0.7% and South Korea’s Kospi was up 0.8%, while India’s Sensex gained 0.3%. Indian stocks rallied at the end of the week as news that a mining reform bill had been passed by the Indian parliament raised hopes that the government may be able to gain support for its proposed bills on a national sales taxes and a new bankruptcy law, which are seen as crucial to its attempts to boost investment and bolster economic growth.
In Latin America, Brazil’s Bovespa rose 1.1%, fuelled by hopes for political change following moves by prosecutors to charge former president Lula da Silva as part of a money laundering investigation. In contrast, Mexican stocks were lower on the week, with the IPC slipping back 0.3%.
Bonds & Currency
Bonds sold off over the week, particularly after the European Central Bank’s meeting on Thursday, where the central bank announced a larger-than-expected stimulus package.
The 10-year US Treasury yield was up 11 basis points (bps) on the week, to 1.98%, while the 10-year German Bund yield was up 3bps to 0.27%.
*Source: J.P. Morgan Asset Management


Money Matters 22 February 2024

Guy Foster, Chief Strategist, discusses UK economic growth data while Janet Mui, Head of Market Analysis, examines US and UK inflation data. Last week was

Money Matters 1 February 2024

Guy Foster, Chief Strategist, discusses end-of-month market performance and recent central bank policy announcements, while Janet Mui, Head of Market Analysis, looks at the latest

Money Matters 25 January 2024

Guy Foster, Chief Strategist, discusses global market performance following the S&P 500 surpassing its previous all-time high, while Janet Mui, Head of Market Analysis, analyses

Money Matters 18 January 2024

Guy Foster, Chief Strategist, discusses the risks of escalating tensions in the Red Sea, while Janet Mui, Head of Market Analysis, analyses the latest US