Equity markets had a mixed week, the FTSE 100 rose just over 1%, the Eurofirst 300 rose nearly 2%, in contrast the S&P 500 fell marginally, as did the Nikkei 225. The S&P 500 came close to the highs of last December, but failed to break through the level. It is worth noting that 10-year US and UK treasury yields have fallen this year, contra to many expectations, as the Federal Reserve begins tapering its bond purchase program. The VIX rose slightly on the week, but at 12 remains close to historic lows.
The next week will be dominated from a UK point of view by Wednesday's unemployment number, as expectations are for unemployment to fall closer to the Bank of England's target of 7%. The question being asked is whether, after this week's announcement that the consumer price index, the official measure of UK inflation, hit the Bank of England's target of 2%, the Bank of England will abandon or modify its forward guidance in the coming weeks?
In my view whilst wage inflation remains below that of the growth in consumer prices, inflation will remain subdued and interest rates will remain at these historic lows.
Equity market performance could well start to be dominated by the corporate earnings season. So far the companies reporting have received a mixed response. Intel missed its earnings guidance and the stock fell 4% on the day. On Friday the US conglomerate GE reported a 4.8% increase in earnings for the 4th quarter. GE stock has risen 34% in the past year but fell 2.4% on Friday after margins came in below guidance. Several of the major US banks have already reported with some doing better than others, Citi being one that disappointed investors. This week earnings come thick and in the US amongst the large companies of note to report are IBM, Texas Instruments, Ford, Microsoft and Bristol Myers. In Europe the earnings season is yet to get into full swing, but names of note reporting this week will be SAP, Unilever and Nokia.
Apart from Wednesday's UK employment data, there are several other macro events worth noting this week. The first being overnight as China reports its Q4 GDP number along with retails sales data, we also get Japanese industrial production. Thursday is a big day in Europe as we get French business confidence, and preliminary manufacturing data for the eurozone for January as well as eurozone consumer confidence. France has been in the news a lot this week as analysts try and decide what next for the French economy, and whether it is set to be the next weak link in the eurozone. According to BCA, France is one of the more euro-skeptic countries in the eurozone, with the way the French economy is performing that is not entirely surprising.
US equity markets are shut tomorrow for Martin Luther King day.