A mixed week for equity prices as the major developed indices come closer to the top end of their six-month trading ranges. Over the weekend top Chinese officials said that they think the Chinese economy is improving, and that capital outflows are moderating. Whether these supportive comments are enough to push equities to break through these trading ranges in the coming days we shall see. The financial press remains committed to focus on three areas, Brexit, the oil price and the possible unintended consequences of negative interest rates. The Brexit debate took a further twist as Ian Duncan Smith, a committed euro sceptic, resigned his post after George Osbourne’s budget proposal to cut disability benefits. The greatest risk to Brexit looks like becoming less and less about the economic impact, and more about the impact it may have on the Conservative party. To illustrate this point, the latest Sunday Times opinion poll put Labour one point ahead of the Conservatives. It will be interesting to see the impact these events will have on the bond and currency markets on Monday morning.
Last week fund flows reported that US funds saw the third week of equity inflows totalling $4.3bn. High yield funds recorded another strong week of inflows, the largest 4-week inflow for 4 years. Further evidence of a return to risk assets as last week was the fourth straight week of money flows into emerging market debt. Money market funds were the big losers.
Further evidence that that fear of a few weeks ago is a distant memory, the AAII US retail investor sentiment index reached a 2016 high for those retail investors who think the equity market will be higher in six months’ time. The Vix index fell below 15, a low for the year. Whether sentiment has moved too far the other way, and a correction after the sharp recovery is on the cards, is looking a tad possible.
Looking to the week ahead, for the UK Tuesday and Thursday will be the focus. On Tuesday the latest inflation, producer prices and the retail price index data. Expectations are for the February year on year inflation rate to remain just above zero. On Thursday retail sales, expectations are for a dip from the previous month. However, retail sales year on year are expected to grow at 5.2% in February.
For the US as is the case most weeks, there is a constant stream of macro data, starting with existing home sales on Monday. On Tuesday we get the Markit flash manufacturing Purchasing Managers Survey Index for March. Forecasts are for the manufacturing index to remain above 50 and close to last month’s reading of 51.5. On Thursday Durable goods orders for February, where a slight month on month drop is forecast after January’s stronger than expected report. On Friday the final report for Q4 2015 GDP.
It’s a busy week all round, in Europe we get more Markit flash PMI data for services, manufacturing and the composite of the two. We get the latest ZEW analyst sentiment survey and the latest institute for economic studies economic conditions report. The week starts with the latest consumer confidence data for the euro area, analysts are not forecasting a pick-up in confidence. The exception this week is China where no major events are forecast.