This week the market condition improved. The S&P 500 closed 1.46% higher on Friday at 2,022, 22 points higher than on Monday. The other American indexes followed on the same path. The Dow Jones Average 30 and the Nasdaq 100 were up 1.25% and 1.34% respectively. The VIX index finished at 16.50, far below the year maximum around 28 reached one month ago. The yield on 2Y and 10Y US Treasuries traded, respectively, 70bp and 90bp higher at 1.98%.
The US dollar index retreated from the peak at 98.23 reached after the disclosure of the decision taken by the ECB executive council to settle at 96.23 on Friday.
Gold price declined by 0.83% in the last five trading days, settling at $1249.4. The precious metal pulls back from the peak at $1275 after a rally enduring since the beginning of the year as investors became more skeptical with respect to world economic growth. Last time gold has had such a huge gain in the first part of the year dates back to 1980. Brent price ended the week more than 9% up at $40.39 per barrel, while the West Texas Intermediate went up 10.8% to $38.49. On Wednesday, the crude oil inventories data was roughly in line with what analysts expected, that is an increased of 3.8 million against 3.67 million consensus.
Economic Data this week were mostly positive. The jobless claims were 2,225 versus the marked consensus of 2255 adding further strength to the labor market. The import and export price index decreased by 0.3% and 0.4% respectively, both 0.1% smaller than the forecasts.
On Thursday, the ECB has unveiled a series of new measures to strengthen the Eurozone’s recovery. In fact the quantitative easing programme has been expanded from €60bn to €80bn (corporate bonds were also included among the assets purchasable) and the benchmark deposit rate was set to -0.4%.
European stocks finished higher Friday as investors, viewing measures of the European Central Bank’s stimulus as supportive to the financial sector, bought bank shares. The Stoxx Europe 600 pushed up 2.6% to end at 342.23. The pan-European index closed with a weekly gain of 0.1%, rising for a fourth straight week. Germany’s DAX 30 surged 3.5% to end at 9,831.13 on Friday. The index was hit hard Thursday, closing 2.3% lower, after it had climbed as much as 2.8%.
Euro bond markets are also rallying, with spreads between Italian and German 10-year securities tightening. Moreover, on Friday, Italy sold three-year bonds with a negative yield for the first time.
After the announcement of these new measures Euro depreciated against the Dollar, however the exchange rate EURUSD soon erased its initial losses, spiking to $1.1167 as ECB chief Mario Draghi signaled there exists a floor for interest rates reductions during his news conference.
With 100 day left to the referendum on the permanence on the European Union, the fear of a possible Brexit mounting last week seems to have been overcome by the more drastic and extraordinary decision on monetary policy by ECB. Indeed, the pound sterling retreated from the minimum previously reached. It went up 1.23% to $1.44 and to 1.28€ for one pound. Regarding equities, the major index of the LSE closed the week registering a decline of 26 points, settling to 6,139.
The past week has been particularly intense from a political point of view as the governor of the Bank of England, Mr. Carney, faced a tough interview in front of the selected treasury commission. Despite the attempts to keep his neutrality and safeguard the reputation and credibility of the Old Lady of Threadneedle Street, the governor clearly identified Brexit as the major threat to the financial stability of United Kingdom.
Japan’s 10-year yield extended its push into negative territory, dropping to an all-time low of minus 0.12%, meaning that almost three-quarters of Japanese government bonds currently offer yields at or below, zero percent. By far the biggest move in trading overnight was the Japanese 30-year, which saw its yield plunge 22 basis points to a record low 0.468%. Japan’s 40-year yield is now lower than the U.S. 12-month yield.
Nikkei 225 was not very volatile during the week, closing down at 0.9% with respect to the previous week.
On Tuesday Yen fell to the third lowest level in the last twelve months against the US Dollar. However, on Friday, the Dollar was pushing higher against the Yen, trading at ¥113.86.
Next week will be important for Japan’s monetary policy. As a matter of fact, the Bank of Japan meets and it will decide about the policy rate; decision which might have a strong influence on the financial markets.
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