The Financial Times reported in Saturday’s edition that record amounts have been poured into European shares in response to the ECB’s quantitative easing announcement. In the past week the capital inflows reflected the index performances, the euro first 300 rose as the FTSE 100 and the S&P 500 both finished the week lower. The FTSE 100 was the worst of the three as it fell over 2.5%, the bulk of the fall taking place on Tuesday. The sharp decline coincided with Mark Carney’s speech to the Lords, as he stated he is prepared to look through the short-term impact the oil price fall is having on inflation data. The FTSE 100 finished the week close to its 200-day moving average; something technical analysts will be looking to provide support.
The rally in European stocks over the past 6 months has taken the euro first 300 index higher by about 16pct. When you take into account the move in the euro against sterling and the US dollar, UK investors will have seen a small return and US investors would have lost money. This reiterates how important the performance of a currency can have on an investment portfolio.
The recent fall in treasury yields has not deterred investor’s appetite for investment grade bonds as the run of weekly capital inflows into investment grade bonds is extended to 64 weeks. US treasury yields fell slightly on the week after Tuesday’s weaker than expected retail sales data. Likewise UK gilt yields fell on the week. 10 year gilt yields having come close to moving back over 2%, fell back to close the week at 1.7%. The Vix traded the week as high as 17.75 and as low as 14.5 finishing the week slightly higher than it started, on the dot of 16.
For the markets the big focus this week will be in the US as the two-day rate setting meeting starts on Tuesday, the decision is announced on Wednesday at 6pm. There are no expectations for a change in interest rates on Wednesday but the speculation surrounds the accompanying statement and will the word “patient” be removed. If it is removed speculation will probably increase for June to be the month when we get the first US rate rise for 7 years. Ahead of the announcement on Monday we get the latest US industrial production data and on Tuesday February’s housing data, should this data come in below expectations this may influence the Federal Reserve during their meeting.
Tuesday and Wednesday will also be the focus for the UK. On Tuesday George Osbourne reveals his pre election budget and on Wednesday the minutes of the last Monetary Policy Committee meeting will be released, along with the latest employment and average earnings data for January. For Europe the focus will remain with Greece as the discussions continue, the two parties appear to remain a long way apart in terms of finding a solution.