The past week was a volatile one for equity markets, which made headlines around the world, as billions of pounds were wiped of values of companies. A dramatic recovery on Thursday and Friday meant the week ended with US and European major indexes higher than where they started. The cause for the rally appeared to be a combination of Mario Draghi suggesting that more stimulus will come in March, and that many America’s citizens are under two feet of snow, pushing the oil price back over $30 a barrel. A couple of brokers also suggested the fall was overdone and some bounce was due.
We mentioned on Friday the Vix index had not reached the levels of stress seen in August last year, The index fell again on Friday back to 23, having started the week close to 30. Suggesting either confidence in a continued recovery in stock prices or complacency by investors.
Reporting season gets into full swing this week, so far 15% of the S&P 500 companies have reported and according to Factset just over 70% have beaten on revenues, but only 49% on revenues. Company executives appear to continue to find efficiency gains from somewhere. American companies due to report this week include Boeing, 3M, MacDonald’s and United Technology.
Looking to the week ahead from a macro perspective it’s a busy week for US data. The focus is likely to be on Wednesday when the Federal Reserve makes their monthly rate announcement. The accompanying statement will make the headlines, as no one expects any change after December’s decision to raise rates for the first time in almost a decade. In our view the Federal Reserve will be left with little choice, but to remain positive on the outlook for the coming year. That is probably what markets will want to hear. Other events this week the markets will focus on will be the Housing data also on Wednesday, durable goods orders for December on Thursday and then on Friday the Q4 GDP estimate.
UK analysts will get Q4 2015 preliminary GDP rate on Thursday; economists are forecasting an annual growth rate of 2.1%. On Friday we get January’s consumer confidence report.
As for China nothing is expected this week, in Europe the German Institute for Economic research will report its latest business climate index reading later today. After last week’s comments from Mario Draghi, suggesting more QE in the coming months, bad news is probably as much good news for markets as any good news. Why Chairmen of Central banks these days seem so keen to make themselves hostages to fortune with these forward guidance statements is a mystery to us.
As we enter the last week of what has been a tough start to the year for investors, many will hope the Vix is an indication of a slightly smoother end to the month.