Another decent week for equity markets, the FTSE 100 is now approaching back to where it started the year. The S&P 500 is now within a couple of percent of its start of the year level. European indexes, which investors appeared very optimistic of at the start of the year, remain underwater. The Ftse eurofirst 300 index of European companies is still down around 5% year to date, despite the recent rally. It has been another good week for resource shares, the likes of Rio has risen 25% from the lows, and Anglo more than doubling from the low earlier in the year.
It was a big week for economic data. The results of the Purchasing Manager Surveys were overall in line to slightly better than most forecasters anticipated. The Institute for Supply Management US manufacturing PMI index reading remained below 50, however at 49.5 was higher than the previous months 48.5 and higher than economist’s forecasts.
On Friday we had another strong employment report for the US economy as non-farm pay rolls rose by 242,000 in February, ahead of expectations. The employment rate remained at 4.9%. Shorter term US treasury yields traded near their highest since mid January, on the back of this report.
In contrast the Markit manufacturing PMI for the UK dropped in February, a reading of 50.8 was below estimates, and last months reading. The ongoing uncertainty over Europe appears to be taking the blame.
This week is likely to be dominated by the ECB, particularly after last week’s weak inflation data for the euro area. The flash year on year report for the euro area saw Europe’s economy fall back into deflation, as the year on year inflation rate fell to a minus 0.2%. Ahead of Thursday’s ECB rate decision and flagged increase in monetary stimulus, we get the 2nd estimate for the fourth quarter of 2015 GDP for the region on Tuesday.
It is a much quieter week for US economic data; the main focus may well come at the end of the week with February’s import export prices paid data. Likewise a fairly quiet week in the UK, on Wednesday we get January’s Industrial and Manufacturing production data. Forecasters are hooping for a slight pick up from the previous months drop.
Sentiment for stock markets has shown a remarkable turn around in the past three weeks from the dark days of mid February. The Vix index has fallen back to 17, its lowest level this year. The High yield index is now up on the year, as the FT reports that investors are piling into US junk bond funds. The FT also reported traders believe the worst may be over for the oil market. Sentiment can change quickly as we have seen in the past.