Another decent week for equity markets, helped on Friday by a positive revision to the US 4th quarter 2015 GDP estimate. The modest rise on Friday saw the S&P 500 close the week above its 50-day moving average. This will be a positive sign for technical analysts. The FTSE 100 had the best of the week for developed markets, up 2.5%, as the oil price continued to recover from recent lows. Global equities have staged a strong recovery in the second half of February. The FTSE 100 down almost 10% at one stage in the month could close back to where it started the month, depending on what happens during Monday. The Ftse 250 index, which measures the performance of the layer of companies below the 100 index, has performed a similar recovery. Other positive moves have come from the Dow Jones Transport Index, up 10% in February. High yield credit has likewise recovered, and despite a small rise on Friday, the Vix index closed the week below 20.
Technical analysts earlier in the month felt sentiment had become too bearish, and a bounce of some kind, termed “a dead cat” was warranted. Partly as broker surveys suggested that fund mangers had become very cautious holding high levels of cash, if this rally continues it could put them in a tight spot.
John Authers, writing in Saturday’s FT, highlights the current weak earnings season and the weak outlook for earnings for the coming quarter, as a possibly reason to remain cautious after this recent bounce. It is easy to become more positive when markets recover, but if brokers have been downgrading expectations and the US economy is a little stronger than expected, those forecasts may be slightly easier to beat in the coming months.
It is a busy week for macro data as the results of February’s purchasing managers surveys(PMI) are released. On Tuesday we get the Chinese Manufacturing estimates, expectations are for a similar reading as the previous month. The forecast is for a reading of 49.4, anything below 50 is considered to represent a receding manufacturing base. Likewise on Tuesday in the US we get the Institute for Supply Managements PMI estimate for employment, new orders and prices for the manufacturing base. On Thursday we get the same data for the services sectors.
For Europe, on Monday the year on year inflation rate, expectations are for a rise of 0.3% in February. On Tuesday the unemployment rate for January, which is expected to remain above 10% for the region.
Markit release their estimate for the UK manufacturing base in for February on Tuesday. Forecasts are for a reading of 52.9, a slight improvement on the previous month. Ongoing headlines will continue to be surrounding Brexit, one feels. Economists will be looking for signs as to whether the uncertainty is affecting the broader economy in the coming months.