A week that was dominated by expectations of what the ECB might do, ended with the US markets reversing all engines late on Friday. The correction in the US meant that all the major developed indices finished the week performing pretty much in line with one another. The FTSE 100, S&P 500 and the euro first 300 all rose just over 1%. Despite the ECB chairman, Mario Draghi, only being prepared to admit that the council had discussed the idea of QE, that did not stop the speculation that the ECB will soon be finding a way to start the process. The FT quoted a figure of up to €1tn would be needed to boost inflation to the target of 2%. The increased expectation that the ECB is coming closer to QE seemed to spur further buying of peripheral debt, as the yield on the Spanish 5-year bond fell below that of the US equivalent bond.
Wall Street's late sell-off came after a well-received jobs report that took the S&P 500 to a record intraday high. Technology stocks led the subsequent fall as the Nasdaq fell over 2%. Technology stocks have had a poor March with the Nasdaq index falling over 5% in the past 4 weeks. When equity markets have a sharp sell-off, one always looks to see what happens in asset classes, looking for indications of a broad paring off from risk. The Vix rose modestly, but continues to trade below its 200-day moving average. The US dollar has been rising in the past week against its basket of other currencies, as it did again on Friday, but the move was not exaggerated. The slight surprise came as US 10-year treasury yields, which have been rising recently, fell back on Friday to 2.72%. One would have expected, after the employment data reported nearly 200,00 jobs had been created in March, that yields would have continued to raise as Investors would expect this data to underpin a continued tightening of the Fed monetary policy.
The coming weeks will start to be dominated by the Q1 reporting season. The curtain raiser is Tuesday's Alcoa report. Alcoa's share price has risen circa 40% in the past 6 months as analysts have become more optimistic for the company's outlook. As the equity markets performance has outstripped that of corporate earnings in the past year, equity investors will be focussing on the earnings season for reassurance.
On the macro front, Tuesday's rate decision by the bank of Japan may give some indication if the bank is looking to add more stimuli to the economy. In China on Thursday we get import and export data that may give further signs as to the state of that economy. In the UK on Tuesday we get industrial and manufacturing production numbers, then on Thursday it’s the Bank of England's monthly rate decision; I don't think anyone is expecting any changes. The release on Wednesday of the minutes from the last FOMC meeting will be the focus for the US in the coming week.