2014 ended in rather a limp way despite the higher revision to the US 3rd quarter GDP. Equity indexes lost approximately 1% in the last truncated week of the year. This limp end to the year was partly a function of the continued weakness in the oil price, but more to do with the resurgence of uncertainty as regards Greece. The failure to elect a president for the third time of asking will lead to elections on the 25th of January and the possible resurgence of the far left Syriza party, who retain a small lead in the opinion polls. Once again raising the spectre of Greece engineering a way to leave the euro.
We will shortly be publishing our conclusions from the past year and a look at the year ahead. Our central theme will remain that despite expectations that this will be the year to see the first rate rises in the US and the UK that with so many uncertainties in the global economy central bankers will continue to run shy of taking any risks with monetary policy. As far Europe, we still think politically it will be difficult for the ECB to introduce outright QE.
If the AAII investor sentiment survey is any indication the year has ended with retail investors feeling bullish for the year ahead. So what will the capital markets be focusing on in the coming weeks that could reinforce or question that optimism?
Europe will once again be the main focus of attention, the first rate setting meeting is not until the third week of the month. Leading up to it this week we get the latest inflation data for the month of December, along with the unemployment rate. There is little expectation that the unemployment rate will show any signs of improvement, and fears ahead of it will be for the year on year inflation rate in Europe to creep closer to zero.
The price oil price will continue to be monitored in the weeks ahead and along with it the impact in particular it is having on the Russian economy. Ten-year Russian government bonds yields have fallen from the highs of a few weeks ago, and now currently yield14%. Memories of the late 1990’s and the last Russian crisis will resurface if those yields continue to rise.
Aside from the constant flow of economic data company earnings reports for the 4th quarter and full year will commence with Alcoa at the start of the second week in January. With valuations looking a tad stretched particularly in the US expectations will be for a confident start to the year in which earnings at least meet or modestly beat expectations. All is left to do is wish our readers a happy and prosperous new year.