Another solid week for equity markets as the FTSE All World Index made modest gains over the week. The FTSE 100 and the Nikkei 225 having the best of the developed markets. Japanese stocks were boosted by some weakness in the Japanese yen. The FTSE 100 closed at a record high of 7435. The S&P 500 closed the week giving a little ground back, however remains close to historic highs. Market analysts can quote the performance of the smaller cap stocks to use as a lead indicator for broader equity markets. It may be worth noting that the Russell 2000 index has failed to match the performance of the larger broader US market so far, this year. The Vix index, having come close to record lows, closed the week roughly where it started just above 10. The first quarter earnings season is concluding. According to Goldman Sach’s the average first quarter surprise from European companies is 10.1% on a market cap-weighted basis. The strongest surprise since the third quarter of 2009. Oil and gas at 31%, surprised the most on the upside. Positive earnings surprises at 54% is also the highest since 2009. This earnings data along with the election of Macron has apparently led to over 6bn euros going into European equity funds in the past week.
On Friday, some weak economic data saw US treasury yields fall once again. A broader weakness nudged the core inflation rate back below 2%, as retail sales data missed estimates. According to the Financial Times markets still place a 75% chance that the Federal Reserve will raise rates in June. Yields on US treasuries were not the only ones to fall on Friday, ten year UK gilt yields having traded up to 1.2% in the week, closed back at 1.1%. One can only continue to believe that with such miserly yields in the bond market this should continue to offer support to equity valuations.
Looking to the week ahead, the G7 finance chiefs conclude a three-day meeting in Bari. There will more company earnings reported during the week. EU President Junker addresses the European parliament on Wednesday on the conclusions of the 29th of April European council article 50.
Amongst the economic data, we get the UK’s latest Consumer Price and Producer Price index readings. UK inflation year on year is expected to climb to 2.6% from last month’s 2.3%, which if that occurs should make UK gilt yields look even more unattractive. For Europe, we get several GDP reports across the region as well as the result of the latest German ZEW survey.
Sunday trading is suggesting that the global cyber-attack that took place late on Friday has had little impact on equity sentiment. However more of these type of attacks, particularly if they manage to involve the financial sector, could cause ripples across the equity markets.