Thanksgiving week, so often a positive one for equity investors saw the S&P 500 fall 2.5%. The good news the Russell 2000 index of smaller companies performed slightly better than its larger cap brother. The FTSE 100 behaved slightly better falling around 1%, as a similar amount for the Stoxx 600. The Vix index barely moved on the week, remaining close to its long-term average of 20. This would suggest that investors and speculators are not paying up for protection despite the fall in equity prices. The MSCI world index is now down close to 6% this year. The Brexit saga continues to hold sterling down, however, this weakness has not provided a boost to the FTSE 100.
The sharp fall in the oil price has probably taken many speculators by surprise, falling by over 5% on. Friday alone. Brent crude now trades below 60 dollars a barrel, having been close to 90 dollars a barrel not two months ago. This move has lowered inflation expectations. US inflation breakevens for the next decade falling to their lowest level this year. This, along with question marks over the slowing global economy has led the market, if not the Fed yet, to question whether the path of rising US interest rates might slow. The yield on the two-year Treasury, the most sensitive to interest rate expectations, has fallen recently, but not so far in a material way. Jerome Powell speaks this week at The Economic Forum Club of New York. It will be interesting to see if he moderates the more hawkish tone of recent times. The minutes of the last Federal Reserve meeting will also be released this week. We also get the second estimate for Q3 economic growth for the world’s largest economy. Other important releases include new and pending home sales; Chicago Fed National Activity Index; Dallas Fed Manufacturing Index; S&P/Case-Shiller home prices; and advance estimates of wholesale inventories and goods trade balance. Donald Trump and Xi are expected to meet in private during the G20 conference.
Brexit will continue to dominate the news and sterling. EU leaders have agreed an agreement for the UK to leave the European Union. This deal has now to be approved by parliament, this may be more of a challenge for Theresa May and the Conservative party. Other news from the UK economy will be the release from the Bank of England of monetary indicators.
Equity markets have taken quite a correction and sentiment has turned far more negative. The question is, has it become negative enough for equity markets to find some resilience?