Greece is the word

Equity markets had another decent week as investors anticipated the actions of the ECB, and were not let down as Mario Draghi delivered on expectations. For the third week running European equity markets outperformed those in the US. The earnings season will now be getting into full swing this week, the first week has seen about 15% of the S&P 500 companies report and just over half have beaten on either sales or earnings, the banking sector has overall failed to meet expectations. The Vix fell on the week sharply from 22 at the start to just over 16 by the end. The run up to the ECB decision and the Greek election saw money flow out of equities and into bonds and precious metals.  A less volatile week for the oil price as it appears to be settling around the mid $40.


The result of the elections in Greece will dominate the news on Monday morning, at the time of writing this the Syriza party looked like falling just short of an overall majority. One has to assume that equities have to some extent discounted a win by the far left party, what may be more important is the rhetoric that comes post the election.


The papers at the weekend seemed to suggest that all is not well between Angela Merkel and Mario Draghi as the Germans remain skeptical of the measures introduced last week. This speculation may unnerve investors a little. Any sign that Mario Draghi’s position may be under threat would add volatility to capital markets.


Economic data, particularly in the US, has recently been missing expectations; this could indicate a slowdown in in economic activity in December and January. Equity markets in the weeks ahead are more likely to be dominated by company earnings, but macro data as always will have an impact. On Monday in the UK we get the GDP for Q4, expectations are for a year on year growth rate of 2.6%.  As is often the case we get a continual stream of data from the US, the focus will probably be Tuesday’s durable goods orders and consumer confidence. On Wednesday we get the latest rate decision from the Federal Reserve, there are no expectations of a change.


We said On Friday that we thought equity markets might pause for breath after the recent recovery. The FTSE 100 has once again reached the top end of an 18-month trading range; time will tell if this is the occasion it manages to break through the illusive 7000 barriers. As the euro continues to weaken against the US dollar the recent outperformance of European equities over US ones could well continue. 

Posted on January 25, 2015 .