The Lowdown on Markets to 4th March 2016
World Markets at a Glance
In this week’s issue
- Global Equity markets continue to trend higher on improved sentiment.
- Better-than-expected US job numbers held market and investor sentiment.
- The markets await next week’s European Central Bank decision on further monetary policy.
- Commodities continue on their upward momentum.
- In the UK the question surrounding “BREXIT” continues to cloud market sentiment.
- The oil price and central bank policy continue to determine market direction.
“Global equity markets record their third week of gains”
Last week we saw global equity markets continue their upward momentum as improved sentiment and a better than expected US jobs number helped the markets extend their recent rally. Indeed, this was the third week that we have seen equity markets forge ahead seemingly dispelling all of the gloom that has affected investors attitude towards risk since the beginning of the year.
Understandably, the robust February US jobs number will create some discussion within the Federal Reserve Bank as to the possible timing for the second interest rate hike. With the US unemployment rate steady at 4.9 per cent and 242,000 more positions created last month it’s justifiably correct that the US central bank should consider their options carefully.
None-the-less the slowdown in hourly wages is likely to weigh heavily on any Fed decision to raise rates this month given that there are no inflationary risks at the current time; therefore, they have time on their side and its more likely that they will leave any further rate hikes to later in the year when perhaps the picture look a little clearer about growth in the global economy.
“Many economists strongly believe that the bank need to be bold and take some decisive action”
Furthermore, it is expected that the European Central Bank will deploy a further cut to their deposit rate this week together with an increased bond buying programme that will be totally aimed at kick starting their rate of inflation. Whilst there is a risk that the ECB do less that the market is expecting, similar to what happened in December of last year, many economists strongly believe that the bank need to be bold and take some decisive action.
The other issue of contention is “how profound will the Chinese economic slowdown be”, given that the world needs to digest and accept that the second biggest economy in the world will need to pull back to levels that are more comparable with many of the developed economies. And yet, whilst this might be the case, what has been quite interesting is that the price of both copper and iron ore has actually risen very recently? Why is this important, well both are looked upon by the market as “bell weather” commodities, an indicator as to how well, or badly, the global economy might be doing.
“There has been a turnaround in fortunes for some commodities in the past few weeks”
Clearly, there has been a turnaround in fortunes for some commodities in the past few weeks as it is thought that China has been restocking after some weather related issues, and possibly some short coverings by traders, none-the-less, it is thought that commodity prices will remain unresponsive for the rest of the year. Admittedly, much might depend on crude oil prices and whether we see any rise in global economic growth over the remaining months of the year.
Certainly, financial markets have enjoyed a vigorous recovery over the past three weeks, amounting to about a 10 per cent rise in equities. This gain was primarily driven by the mid-February lows and an oversold market, which in turn, has led to an increase in investor risk appetite. Unfortunately, excluding last week’s better than expected US jobs numbers, the fundamentals have not really improved which does create a rather uncertain outlook.
Undoubtedly, the equity markets will now be looking for some additional incentives, if they are to rally further. This could be in the form of some aggressive action taken by the ECB, or perhaps the Bank of Japan, but of course, much of this is already known in the market place and therefore any disappointments could have a negative effect on markets.
And so, not much has changed as of today. Clearly, the markets are going to be driven over the coming months by much of the same, the direction of crude oil prices, Chinese economic worries, and what the Federal Reserve Bank might decide on US monetary policy, and as for the United Kingdom, we will remain very much focused upon “BREXIT” over the coming months
Peter Lowman Chief Investment Officer
Peter Lowman has been in investment management for over forty years and prior to becoming Chief Investment Officer for Investment Quorum, he worked within a larger asset managers, primarily as an Investment Director with Cazenove’s.
He is responsible for the overall investment strategy for Investment Quorum clients and sits on the Investment Quorum Committee.
This article does not constitute specific advice and investors should bear in mind capital invested is not guaranteed.
Investment Quorum is authorised and regulated by the Financial Conduct Authority .