A volatile week that saw equity sentiment fall once again into fear territory. The catalyst was a series of weak Purchasing Manager Surveys alongside the WTO, allowing 7.5 billion dollars of tariffs against the European Union. The effect was to reignite the fears of an economic recession around the globe. Equities staged something of a rally on Friday after some better US jobs data. Global equities at a low point in the week down over 4%. The FTSE 100 losing almost 5% at the worst, eventually recovering from 7000, helped by a general improvement at the end of the week.
Bonds were in demand as investors headed for safety. The yen rallied against the dollar, another sign of a general flight to safety. The dollar lost ground in general as speculators became more convinced that the Fed will look to cut interest rates later this month in reaction to the weak data. The price of gold likewise rising. However, commodities, in general, remain weak, reflecting growth concerns.
The one possibly slightly surprising feature, despite the volatility, the Vix index fell on the week. The index reflects the price investors want to pay to insure their portfolios from further falls. Although at one point the index did have a sharp rise, the fall at the end of the week could suggest the investment community feel reassured the Central Bank’s will once again come to the rescue, as below-target inflation rates allow them this flexibility. At present, economic forecasters do not forecast a global recession; they still expect the global economy to grow just over 2% this year.
Looking to the week ahead, the minutes from the ECB and the Federal Reserve from their last meetings will give some idea as to the desire for further monetary stimulus going forward. There has been some public dissension from both camps for the more dovish stance both councils have recently taken. The minutes could reveal the level of that dissension.
Other data points for the US economy investors will look for will be the latest inflation and consumer confidence data. Trade talks recommence between China and the US, another likely influence. Plenty from the UK economy including, GDP, Industrial Production and the trade balance. As we get ever closer to the end of the month, Brexit will remain in the headlines. One does wonder if the tide is turning towards finding a solution at the 11th hour. The European economy continues to struggle, as the uncertainty affects that economy as much as it ours. We also get a series of data from the eurozone this week which could reinforce the view of that economy, including German Industrial Production and factory orders.
We look forward to another week; we know not what it brings.