Market Insight - Feb 18
MARKET INSIGHT
By Bryn Griffiths (CEO, Edge Capital
Markets)
Equities
Global equity markets ended the week
relatively unchanged on the back of lighter volumes due to
Chinese New Year celebrations throughout Asia. The Chinese
market was closed for the entire week. Albeit a small gain
of only 0.1% for the week, the S&P 500 has posted gains for
the seventh week in a row and is up, along with the Dow
Jones Index over 6% in the last 8 weeks. Driving this rise
is continued economic data releases that keep surprising to
the topside. This week saw better than expected US Retail
sales (+0.2% vs +0.1%), Lower unemployment claims (341k vs
361k) and to close the week a solid Empire State
Manufacturing Index (+10.0 vs -2.1) and the all important
Consumer Sentiment (76.3 vs 74.8). The landscape of
improving sentiment and low volatility (CBOE VIX is at 14.45
and has dropped 21% in last 8 weeks) is starting to bring
some of the excess cash horded during uncertain times back
into the market with the Merger and Acquisition market
starting to appear again. Warren Buffets Berkshire Hathaway
in Collaboration with 3G Capitals acquisition of H.J Heinz
Co. (yes the Tomato Sauce maker) got the markets attention
this week. Despite all this good news a reminder of that
some of the volatility out there still remains was delivered
when an email to executives from Wal-Mart’s vice president
stated that “February Month to Date sales are a total
disaster” and are “the worst start to a month I have
seen in my ~7 years with the company”. Recent outflows
from the European markets subsided this week as some larger
companies released better than expected results. This was
despite a worse than expected release of the European GDP
figure (-0.6% vs -0.4%). As mentioned, Asia was quiet on the
New Year holidays. With Asia back on deck this week, we
should see increased flows in these markets.
Weekly Moves: Australia 200 +1.2%, Hong Kong +1.0%, Japan +0.2%, China +0.0%, France +0.3%, Germany -0.7%, UK +1.0%, Dow Jones -0.1%, S&P500 +0.1%, Nasdaq -0.4%
Currencies
The US
dollar saw inflows during the week with the US Dollar index
closing up 0.3%. Again this was represented by mixed flows
within each region. The NZDUSD rose and the AUDUSD fell and
the EURUSD rose whilst the GBPUSD fell. The meteoric rise
that the USDJPY has had over the last few months was halted
somewhat this week as investors took profits in the lead up
to the G20 finance heads meeting over the weekend. There
were heightened risks that potentially some comment would
ensue about the currency wars that appear to be brewing.
Indeed this was the case with a pledge not to “target our
exchange rates for competitive purposes”. It appears that
the policy devaluing of a country’s currency is ok, but
giving specific guidance as to target levels is not, is the
essence of the statement. So expect the same stimulus to
continue with perhaps slightly different wording around the
currency positions. Japan, clearly in the target sights of
this statement denied driving down their currency arguing
that its fall was a by-product not a focus of their efforts
(I hear a Tui’s billboard is being built at the moment –
yeah right!). This week should see increased activity as the
Asian markets awaken from their holidays and join the rest
of us back at work.
Weekly Moves: AUDUSD -0.1%, GBPUSD -1.8%, EURUSD +0.0%, NZDUSD +1.5% USDCAD +0.8%, USDJPY +0.8%, USDCHF +0.5%
Interest Rates
This week saw
outflows of capital from the global bond markets as the
world continues to see-saw between good news and average
news regionally coming out of the global economy. This week
was a good news week overall with yields up predominantly
across the globe as continuing better than forecast economic
results are released. The recovery in the US, in the eyes of
investors, seems to be gaining momentum and therefore safe
harbour in bonds is not required at the moment. Foreigners
demand for US treasuries is on the rise again where it was
reported that nearly US$30bln was bought in December – up
from the US$26bln bought in November. To note this week was
that Yields on Spanish and Italian bonds fell on belief that
their debt issues could be managed going forward despite the
looming Corruption allegations against Spain’s Premier
Rajoy and Italian elections. ECB President Draghi was quoted
as saying that Spain had achieved “enormous progress”
and that data due in coming weeks will show “unprecedented
fiscal consolidation efforts”.
Closing Yields (Weekly Move):
3m 5y 10yr 30yr
US 0.10% (+0.03%) 0.86%
(+0.03%) 2.00% (+0.05%) 3.18% (+0.02%)
UK 0.36%
(+0.01%) 0.97% (+0.03%) 2.19% (+0.09%) 3.43%
(+0.08%)
Germany 0.05% (+0.00%) 0.66% (+0.03%) 1.65%
(+0.04%) 2.44% (+0.06%)
Japan 0.10% (+0.03%) 0.14%
(+0.00%) 0.75% (-0.02%) 1.94% (-0.06%)
Australia 2.88%
(+0.03%) 3.04% (+0.05%) 3.52% (+0.04%)
Metals
Precious metals saw strong outflows this week
as the US economic data releases this week moved investors
away from the safe haven status of Gold. Some of the
world’s biggest names moved out of precious metals on
reduced safe haven positioning - it was noted this week that
billionaire investors George Soros and Louis Moore Bacon cut
their exposures to gold backed exchange traded products in
the 4th quarter of last year. With the strong moves we have
seen recently in equities and continued improvements in US
economic data releases, investors are becoming more and more
comfortable holding riskier assets. Silver was caught in the
downdraft despite its higher levels of industrial demand
that should see the Gold/Silver ratio fall in these
improving times. Despite an improving global economic
landscape copper closed the week down as well. This was
somewhat a surprise however the metal is up nearly 6% in the
last 12 weeks, so a pause before further upside is
understandable. Weekly Moves: Gold -3.4%, Silver -5.0%,
Copper -0.6%