U.S. equities experienced a negative performance during the past week. Stocks suffered sharp losses also on Friday and the main indexes registered a decline for a third week in a row, finishing what has turned out to be a turbulent five-day trading stretch. The Dow Jones industrial average fell 136 points (-0.76%) to 17,749.13, the S&P 500 lost 22 points (-1.06%) to 2,053.40 and the Nasdaq Composite dropped 66 points (-1.33%) to 4,871.76.

Two factors resulted to be a concern: a robust USD, which threatened to erode the profits of multinationals, and tumbling crude oil prices, which pressured energy shares.

On the one hand, dollar strength is not really a news: as we can grasp from Chart 1 below, Dollar Index (which measures the value of USD relative to a basket of currencies) has grown continuously recently. Such a strength has verified against both developed and emerging markets currencies, as a sign that investors start to feel a rates hike closer.

Chart 1: Dollar Index (Source: BSIC, Bloomberg)

Chart 1: Dollar Index (Source: BSIC, Bloomberg)

Conversely, after stabilizing in recent weeks, oil prices are back on the decline over concerns that the world is producing more crude than it can store. On Friday, the International Energy Agency warned that the oil glut continues to build as U.S. oil production showed no signs of slowing. WTI fell 4.08% on the last trading day of the week, closing at $45.13 a barrel. Prices have fallen in six of the past seven sessions and crude oil is down almost 60 % from June peak.

Chart 2: WTI (Source: BSIC, Bloomberg)

Chart 2: WTI (Source: BSIC, Bloomberg)

For what concerns macroeconomic data, investors have faced a set of mixed reports over the week. Sales in U.S. retail and food stores unexpectedly decreased 0.6% from the previous month, following a 0.8% drop in January. It was the first time since 2012 that sales had dropped for three consecutive months. Moreover, producer prices declined 0.5% in February after declining 0.8% in January. That was the fourth consecutive monthly decline in the PPI. The index showed a surprise drop, indicating persisting deflationary pressures. Meanwhile, consumer sentiment slid in March, failing to match expectations.

Investors are now looking ahead to next week’s Federal Reserve meeting, which could provide further insight into when the first rate increase will come.


After the announcement on January 22nd, the ECB finally started its first bond-buying programme on Monday. Although BSIC thought that markets had already priced in such a monetary stimulus, the facts proved us wrong. In fact, the QE has had substantial effects on the European markets during its first week.

Equities gained roughly 3.5% on the week, with the DAX reaching another record high at 11,903 points. Government bonds yields instead saw an even more surprising downward move. For example, 10y Italian BTP started the week at 1.32%, it collapsed to 1.04%, then closing the week at 1.15% and its spread with the Bund went below 90 bps for the first time after the crisis. Finally, the common currency was negatively affected by the QE clearly, reaching a 12-year low of 1.0462 against the dollar.

Chart 3: EUR/USD vs. Dax30 Index (Source: BSIC, Bloomberg)

Chart 3: EUR/USD vs. Dax30 Index (Source: BSIC, Bloomberg)

Chart 3 above shows three main evidences. The first is that EUR/USD weakness has become stronger and stronger last week. The second relates to the fact that exporters have been the best performing stocks, and big German corps are probably the best example of a such re-gained competitive position. Lastly, related to previous points, correlation between European equity markets and exchange rate has become increasingly negative.

Furthermore, it is important to note that ECB action has really been able to dominate all the potential negative news of the week, which started with new evidence of China slowdown. Not even Greece was able to affect the positive mood set by Mario Draghi this week. Despite the Eurogroup meeting on Monday rejected the reform proposals by Alexis Tsipras, as they were judged as insufficient, and a deal is far from being reached between the Greek government and the European Council, major European markets were not heavily affected.

Finally, let us look at next week events. Indeed, there are interesting pieces of data coming out, which might show the very first signs of effects of QE on the real economy rather than that on the markets. On Tuesday, the German ZEW Economic Sentiment, which shows investors’ confidence on the economy, is expected to be released at the one year high. On Thursday, another round of targeted LTRO will show what the state of the demand for loans is. Finally, current account data coming out throughout the week might start showing the effect of the Euro weakness.


This week began with some contrasting news: on the one side, a positive y-o-y growth of 0.2% for the BRC retail sales monitor; on the other side, manufacturing production and industrial production showed weaker than expected data, with -0.5% and -0.1% m-o-m growth rate versus estimates of 0.2% and 0.2% respectively. These last two results need to be reviewed carefully: although they did not meet expectations, they represent month on month changes and this does not directly imply UK is losing momentum, given also the above than expected data from the previous week.

For what the FTSE 100 concerns, it has been quite a rough week. The index lost about 200 points (-2.93%) from Monday to Wednesday, the week low, while it regained something on Thursday and Friday, closing the week at 6,740 points (-2.20% on last Friday).

On the fixed income side, the UK Gilt 10Y lost about 23 bps, with a current yield of 1.71%, and the UK Gilt 5Y ended down 21bps, from 1.52% to 1.31%. It seems, therefore, that European QE has been able to bring more liquidity (investors) also to UK bonds, which is feasible in globalised markets.

On the FX market, the Pound remained quite flat against the Dollar at about 1.48 USD/GBP and against the Euro with an exchange rate of 1.41 EUR/GBP.

In conclusion, some important economic data are expected from UK next week, such as the Average Earnings Index (3m/y) and the Annual Budget Release, and those will help to better understand how private sector is doing in 2015 and what the expectations of UK government for the future are.

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