A week where equity markets seemed to defy news that could have potentially damaged investor confidence. The increase in geopolitical risks after the shocking events in the Ukraine, as well as the rising tensions in the Middle East the most obvious one. At the close on Friday the developed markets of Europe, US and Japan all finished higher than where they started the week. The Shanghai composite index of leading Chinese companies also finished the week slightly higher after the better than expected GDP data.
The results season continues to pick up pace, and so far there has been not too much to unsettle investor nerves. The banking sector, which was of some concern ahead of their results, appear to have dampened expectations enough to ensure they at least met those expectations. Investors showed little reaction to GE numbers on Friday, as they reported an in-line quarter. The post result analyst’s comments mostly appear to be supportive of the shares at these levels.
Our weekly look at investor sentiment shows a mixed bag. The AAII investor sentiment survey showed bullish sentiment fall again. The gap between the bulls and the bears is now only 4% in favour of the bulls. The Merrill Lynch weekly asset flows data reported another week of inflows into equities and bonds, equities attracting slightly more capital at $6.2bn v $3.5bn for bonds. Merrill Lynch also reported private client equity allocation, at 61%, is at a nine-year high. The Vix rose sharply on Thursday, but fell back again on Friday to finish the week at 12.
After a busy week for central bankers that saw the President of the ECB and the Federal Reserve along with the Governor of the Bank of England all facing public scrutiny, the direction of interest rates in all three regions remains unclear. The Fed did hint at the possibility of the first rate rise coming sooner than mid 2015, despite this U.S treasury yields fell again closing the week below 2.5%. Falling bond yields can offer a mixed message for equity investors; on the one hand it can show a lack of confidence in the economic recovery, against that it does add to the attraction of equities as an asset class.
The week ahead sees a continuation of the results season. The CNBC earnings calendar has nearly 400 companies reporting this week. Trying to pick out the highlights is difficult amongst that number. Technology shares feature with Texas Instruments on Monday and Apple on Tuesday.
The highlights on the economic front will probably be Tuesday’s U.S. inflation data, after last month's surprise jump. Expectations are for the year on year number for June to stay at 2.1%. A relatively quiet week in Europe, on Wednesday we get monthly consumer confidence data and on Thursday Markit Purchasing Managers Surveys. Recent data from Europe has been mixed; it is hard to see why expectations should improve for this week. In the UK on Friday we get Q2 GDP.