Although the main global equity and bond benchmarks were relatively stable last week, this masked a number of large moves in underlying markets. In Brazil and Italy, politics weighed on sentiment, whilst a surprise rate hike in Turkey stemmed recent weakness. Meanwhile, the copper price hit the highest level since 2014 as Chinese imports hit the highest levels since 2000.
In a holiday shortened week for the US and UK, a veritable smorgasbord of news flow buffeted markets. From a general sense, two of the most prominent recent headwinds for the market (US rates and the oil price) may now start to cool. With respect to the former, hikes will likely continue this year, but FED rhetoric may turn more dovish as the FOMC digest the effects of their tightening and the ageing cycle. Indeed, slowing but still above trend growth, Europe is likely to see the ECB pause for thought as well.
Two weeks ago, the US 10-year bond yield broke decisively through 3% and the oil price (Brent) rose above USD 80. Last week saw an abrupt “about turn”, as dovish Fed minutes continued geopolitical wrangling and speculation of easing OPEC supply restrictions, prompted the largest drop in US yields in over a year and a 7% intra-week decline in the oil price (with further declines yesterday).
As the global economy normalises after 18 months of perfect calm, a number of flash points are emerging. Argentina has requested help from the IMF after a precipitous fall in its currency and facing an unsustainable fiscal position. This comes only 6 months after the country successfully sold 100 year bonds, which now trade below 90 cents in the dollar…
Last week, the IMF released its updated “World Economic Outlook”. Just as in January, the fund believes global growth will continue at a cyclical peak of 3.9% until 2020 (an acceleration from 3.8% last year). However, the forecast came with a caution that “momentum is not assured”, particularly in light of
After a vicious rally and equally potent sell-off at the start of this year, equity markets have oscillated uneasily with no clear direction. The economic cycle has matured, with the US late cycle, and although some emerging countries remain in a “sweet spot”, the general picture is now of higher volatility and a more classical inverse relationship between bonds and equities. Of course, every period of history has its own peculiarities.