The gone by, and the week ahead

A solid week for equities as the major developed markets of Europe, the US and UK all finished the week higher than they started. For the first time this year the S&P 500(up3.3%) out performed Europe (up 1.7%). The notable move last week came in the bond market, just as we pointed to the fact that central bankers are now throwing in the towel on inflationary expectations, 10 year bond yields rose sharply higher in the past 5 days. Mark Carney according to the Sunday press is going to suggest he expects inflation could fall close to zero in the coming months, when he releases the latest inflation report on Thursday.  Last week’s fund flow data reported large in flow ($21bn) into bonds and out flows of $7bn from equities. The greed in bonds and the fear in equities appear to continue despite record low yields in bonds.


The weekly AAII investor sentiment data showed a marked change in investor sentiment, as the bears now almost equally match those who are bullish, the previous weeks has been much more in favor of the bulls.


Friday’s US jobs data seemed to be the catalyst for the latest rise in yields, which showed an increase in job creation higher than expectations. This along with an increase in hourly wages led to the bringing forward of rate rise expectations in the US from September to June. We stick to the view that as the global economy may have suffered a relapse over the past few months, but the fall in fuel prices has given the global economy a major adrenalin boost, and this will come apparent in the coming months, maybe Friday’s data was the first signs of this.


Over 60% of the companies in the S&P 500 have now reported earnings, of which (according to fact set) 78% have beaten on earnings and 59% on sales. This is a marked improvement from a week ago. As far as earnings guidance the news is slightly less encouraging, 52 companies have reported negative earnings guidance against only 10 positive.


Monday morning trading may be dominated by the weak import export data that came from China over the weekend, as imports fell 19% and exports fell 3%, both figures well below expectations.


The earnings season will now pick up in Europe, with companies such as Total, Michelin, Rio and L’Oreal all reporting in the next few days, to name but a few. We mentioned on Thursday the latest inflation report in the UK, this is bound to make some headlines. In Europe on Friday we get the latest GDP data for Q4, in reality this is a historic figure and after the actions of the ECB meaningless number.


Posted on February 8, 2015 .