This past week saw equity prices mark time, having dipped in the middle of the week and recovered towards the end. Equity markets were helped as ten-year US Treasury yields fell back below 2.9% on Friday. The S&P 500 has recovered roughly 5% of the fall from earlier this month. The fall in yields supported all sectors but particularly those who have been recently hit such as utilities and telcos, who are more sensitive to changes in interest rate sentiment.
Another encouraging sign, the Vix index fell on the week, trading back below 17 and comfortably below its long-term average of 20. After two weeks of strong equity outflows, Lipper fund services reported that for the past week equity inflows into all funds of circa 3.5BN dollars. The dollar had a small recovery in the week against its basket however this did not stop commodity prices staging something of a small recovery. The price of oil rose 1.4% on Friday as Brent Crude closed the week above $67 having been close to 65 at the start.
The bond market was probably supported by the release of the half-yearly monetary policy report. The Fed report remained dovish in tone, as it continues to believe that inflation will hover at or just below their 2% target for this year. The report also indicated that the Fed currently is sticking to their expectation of 3 rate hikes this year. In the coming week, the new Fed chair Jerome Powell will give his first testimony to Congress. Mr Powell’s appointment is also considered to be one for the doves.
Its busy week for US economic data, January durable goods orders, as well as January new homes sales. Aside from Mr Powell’s testimony on Wednesday we also get the second estimate for US GDP for the final quarter of 2017. Estimates are for something of a slow down in the fourth quarter to an annualized rate of circa 2.5%. Other data points are personal income and spending as well as the Institute for Supply Management Purchasing Managers report for February.
It is not such a busy week for the UK however on Monday we get the latest estimate from the Halifax for House Prices over the past year. On Wednesday Gfk consumer confidence, there was a better than expected pick up in consumer confidence in January, forecasts are for it to have slipped again in February.
For Europe, in the coming week, there is a lot of data from the German economy including inflation for the month of February. On Friday the euro area inflation rate year on year for January was 1.3% back from 1.4% in December.
After the solid finish to the week in America, markets in Europe and Asia should start the week in a relatively positive mood. With a few days of what has been a volatile month traders and managers will hope for the recent consolidation in equity markets to continue into the final few days of February.