On Wednesday some important economic figures were released. The Core CPI Index and the CPI Index went up respectively by 0.3% and 0.5% (MoM) in January fueling up US inflation expectations; the movement was larger than forecasted and was offset by the data on Retail Sales which went down by 0.3% (MoM) in January.
After last week correction, the US stock market resumed its upward trend during the week ended February 18. The S&P500 moved from 2.636,75 to 2.732,22 (+4,30%), the Nasdaq went up by 5,31% from 6.936,68 to 7.239,47 and the Dow Jones closed up at 25.219,38 with a +4,25% change from Monday’s open at 24.337,76. The volatility, which remains still higher than the record low values reached in the last months, has lowered after the recent spike; the VIX index followed a downward trend with a weekly -28,1% from 27.05 to 19,46.
The yield on the US 10y T-Note reached a peak on Thursday at 2.936% due to the data released on the previous day on inflation, but then closed at 2,875% on Friday with a weekly change of just two basis points more (2,851% on Monday).
The Dollar depreciated against major currencies as the Dollar Index fell from a value of 90.37 on Monday to a value of 89,08 on Friday (-1,43% weekly change).
Next week, the FOMC minutes regarding the meeting of January 30-31, 2018 and the Markit Composite PMI Index will be released.
The past week was less active than the preceding one in the Euro Area. After the steep drop in all European indices in the beginning of January, as a consequence of the US market correction and volatility spike, the past week saw some tentative increases. Whilst losing about 200 points in the correction two weeks ago, the Eurostoxx gained back 100 points this week to close 1.1% higher. Equally the recoveries of the CAC 40 in France and the DAX in Germany were muted. Whilst falling from a high at above 13,000 points to almost 12,000 points in the beginning of February, the DAX recovered by 200 points over the past week to close only 0.59% up at 12,452 points. The CAC 40 moves were slightly less erratic and it closed the week at 5,282 points, 1.13% up.
The bond market showed equally few shifts over the past week. While the German 10 year bunds yielded 0.71% at the end of the week, compared to 0.69% a week before, and the Italian 10 year bonds decreased from 2.03% to 1.99% this week, the French 10 year bonds actually increased their yields from 0.95% a week ago to 0.99% at the end of this week. Such muted activity is in part due to the slow but stable recovery of European indices but also derived from a lack of decisive macroeconomic indicators over the past week.
After the initial confusion about market corrections in the US and Euro Area in the beginning of February, the Euro appreciated against the Dollar over the past week up to $1.24. As no decisive information about a possible Brexit deal has been published very recently, the exchange rate Euro – Pound remained largely stable.
Most relevant macroeconomic indicators published during the past weeks (February), were year on year January inflation estimates of Germany, Spain and Italy slightly lower in January than before. Slightly lowered GDP growth projections for the Euro Area in Q4 of 2017 revised to 2.7% despite a huge upwards correction of industrial output growth by 5.2% in December. Another positive sign came from German and French unemployment rates that fell to historic lows of 3.6% for December and 8.9% for Q4 of 2017 respectively.
In the coming week several economic sentiment and consumer confidence indices will be published in Germany and for the EA for February. The IFO will present its business climate and current conditions report for February and Markit Composite PMI Flashes will be published on Wednesday.
During the past week, the British Pound increased to 1.4028 USD (+1.43%) and 1.1295 EUR (+0.10%). The FTSE 100 climbed to 7294.70 (+2.85%) in the second half of the week.
According to a preliminary estimate by the Office for National Statistics and Eurostat, British GDP growth during 2017 was 1.5%, compared to 2.7% of the Euro area. This is the first time since 2010 that the British economy lags behind the Euro area.
It was reported that the current short loan balance of £30.8 billions is the largest position for short sellers in British equities since 2009, reflecting uncertainty over Brexit and domestic politics. The IMF warned that UK must implement structural reforms, particularly to education, infrastructures, R&D and pensions, which are bound to become more and more relevant in the future years.
The yield on 10y govt bonds slightly increased from 1.57% to 1.58% and data on CPI was released on Tuesday, being 3% YoY in line with expectations.
With regards to next week, on Tuesday BoE Governor Mark Carney and members of the Monetary Policy committee will testify on inflation outlooks while on Thursday official GDP statistics will be released.
Rest of the World
Japan’s Nikkei 225 closed the past week substantially flat at 21.720 points, and the same is true for Topix which ended the week exactly where it started at 1.737 points. Overall JPY is up 2.1% versus the dollar and Hang Seng went up 4.8% the past week, closing at 31.115 points. Market activity was low because of the Chinese New Year’s celebration.
South Africa index is down 9% since the ATH of late January and now is moving swiftly in the channel 56,000-57,500 points. South African Rand has been the best performing currency vs the dollar since the elections since the election of the new President Ramaphosa.
Commodities are up: gold in particular is back at YTD-high at 1,360 $/ounce, which benefitted from a steady decline in the Dollar Index (DXY) and in the equity. WTI has recovered from the previous week and is up 1.2% at 61.5 per barrel; crude as well recovered and is sitting at 64.5 $/barrel. The Minister of Energy of UAE released a statement saying that an agreement between oil producers of Saudi Arabia and Russia is very close.