A volatile first full trading week of 2015, as developed equity markets finished the week lower overall, but did recover some of the losses from the start of the week. Equities were rattled at the start by the ongoing uncertainties with regard to the upcoming Greek elections, and what this could mean for any aspirations that the ECB might have to announce full-blown quantitative easing. Nerves appeared to be calmed as the week wore on; particularly post the release of the minutes from last Federal Reserve meeting that investors interpreted as showing no signs of a desire by the Fed to move on interest rates. The US dollar finished the week higher as did US treasuries; 10-year yields are back below 2%.
One point of encouragement, despite equities finishing the week lower, so did the Vix. The fear gauge started the week above 19, climbed above 22 at one stage, but managed to finish the week just above 17. The oil price continues to cause much in the way of headlines, after the initial fall at the start of the week oil stabilized with the Brent crude price closing on Friday just over $50. Once the price does settle it seems fair to assume that the focus will move towards the benefit a lower oil price brings to the global economy.
The fund flow data for the first week of the year reinforced the “ risk of” mood of investors as $12bn were taken out of equities, the bulk of the money appeared to go into money market funds with the rest going into investment grade bonds.
Looking to the week ahead, Alcoa the aluminum producer, reports earnings on Monday after the market closes. Aluminum has a diverse selection of uses within industry, from cars to construction to fridges and aerospace. For this reason its results are always considered something of bell weather for the reporting season ahead. Expectations are for an improvement in earnings reflecting an improvement in the aluminum price. The earnings season is always important, but with equities looking fully valued it will prove as important as ever to under pin those valuations.
It is a busy week for news in the UK, on Tuesday we get the UK inflation data for December. Expectations are for deflation of 0.3% month on month in December, and for the year on year core inflation rate to fall to 1.2%. There was some speculation in the weekend press that the year on year rate could fall below 1%. After last weeks release of the Fed minutes, this week we get the release of the minutes from the last MPC meeting. Expectations will be for the voting to remain 7-2 in favor of no change, as has been the case for the past few months.
Speculation as to the strength of Chinese economy will again be in focus in 2015. On Tuesday we get December’s import export data; expectations are for a fall in imports of 6.7%. There is not much scheduled for Europe this week ahead of next weeks ECB rate setting meeting. Speculation will only increase between now and then as to what if any new monetary initiative will be introduced by the ECB at that meeting.