Not a great week for equity prices, the only possible slight crumb of comfort was that they finished the week on a positive note. The FTSE 100 continues to jockey around the 7200 level. The S&P 500 has recovered some of the February losses, however, not all and remains approximately 5% below its peak. The Russell 2000 index, which tracks the performance of smaller capitalised stocks has encouragingly recovered almost all its losses. The index is worth tracking as indexes of smaller capitalised stocks can often be a lead indicator for movements in bigger stocks. The Vix index closed the week pretty much where it started it, despite falls in the S&P 500 which too may be an encouraging sign. Equities may have been helped in America on Friday as US consumer sentiment hit a 14-year high.
Yields on US treasuries have retreated on the week, as US political uncertainties seemed to be the main cause of the cautious market behaviour. Russian tension appears to have had limited impact on equity sentiment, possibly following the adage to buy on the risk of conflict. If nothing happens markets recover on relief and if tensions escalate one possibly has more to worry about than the stock market. To that point, according to a report in the weekend Financial Times, the buyers are back in town as a record 43bn dollars went into stock funds and ETF’s in the past week. Up to this point, there had been net outflows from the start of the year.
Looking to the week ahead the main headlines are likely to be made by the Bank of England and the Federal Reserve as they meet to decide on interest rates. The Fed is expected to raise interest rates by 0.25%. The Bank of England, on the other hand, are expected to wait till later in the year before deciding. One feels that should the Federal Reserve not move this week it will not be well received by equity markets. This could indicate that the Federal Reserve was feeling more cautious on the outlook for the economy. What may be of more significance will be the press conference after the decision and the Fed economic projections which are due to come alongside the rate announcement. Later in the week, we get the flash Purchasing manager surveys for March and Durable goods orders for February.
Something the Monetary Policy Committee will take note of ahead of their meeting on Thursday will be the latest inflation rate data on Tuesday and then on Wednesday unemployment and average earnings. Earnings growth has lagged inflation, placing a squeeze on consumer spending. Inflation is forecast to slip below 3% and average earnings are expected to grow year on year at 2.5%.