All major developed equity indexes finished the week in the red. Emerging market indexes also had a difficult week as the US dollar continued its rise. Bond investors also suffered as strong US economic data along with more hawkish comments from Jerome Powell led to investors questioning whether the Fed will need to be more aggressive with raising interest rates. The FTSE 100 the worst performer as it lost 2.55% on the week, now down almost 5% year to date and over 7% from its peak earlier in the year. The Stoxx 600 index losing just under 2%. The S&P 500 faired a little better down just under 1%, as it continues to outperform its smaller peers the Russell 2000. The technology sector continues to suffer down 3% on the week.
The ten-year US treasury closed the week at its high of 3.23%, however, the curve did steepen slightly on the week. Italian budget concerns saw ten-year Italian bond yields rise to almost 3.5% by Friday's close. So far there seems little sign of contagion in the broader European bond markets. The oil price did track back a little towards the end of the week. The Vix fear and greed gauge index closed the week just below 15.
A correction was likely, so far its been a pretty mild one in the US, but far more extreme in Europe. The FTSE 100 correction is reaching a level that could suggest it offers investors something of an opportunity. The question is if US equities continue to correct can markets in Europe buck the trend? Possibly not. It is worth remembering a blog we wrote a few weeks ago, 80pct of the time the FTSE 100 has finished up over the year since inception. At present the yield on the FTSE 100 is almost 4%, assuming those dividends can be maintained, more than double what you can get in ten-year gilts.
Looking to the week ahead US inflation data will make the headlines along with Michigan consumer sentiment. Core US inflation is expected to climb to 2.4% from 2.2% in the previous month. Anything more than that and we could see a further sell-off in global bond markets. China could make a few headlines this week. At the start, on Monday, we get the Caixin composite Purchasing manager index. Analysts are forecasting a pick up from the previous month. At the end of the week the latest import-export data. With all the talk of trade wars.
As for the UK the month on month GDP forecast for August will make some domestic headlines. We also have Industrial and manufacturing production for August.