Last week, Dow Jones fell 1,089 points within minutes of Monday’s opening bell and on the other hand S&P closed 3.9% up on Wednesday, its biggest daily gain since November 2011. This lead to global equity markets experiencing one of the biggest fluctuations between ‘risk off’ to ‘risk on’. The commodity markets also felt the volatility as the oil prices went up by roughly 15% from their lows at the end of the week.
Over the last week, the Shanghai composite index declined by 7.85%, Sensex and Hang Seng declined by 3.56% and Nikkei 225 declined by 1.54%. On a positive note the NASDAQ rose by 2.6% and the FTSE 100 rose by 0.97%. The yield on 10 year US treasury bonds rose by 13 bps to 2.18%, which meant that prices fell during the week.
The People’s Bank of China as a policy response dropped the reserve requirement by 50 basis points, lowered its benchmark one-year lending rate by 25 basis points to 4.6% and also cut the one-year saving rate by 25 basis points to 1.75%
William Dudley, the President of the New York Federal Reserve suggested that due to the volatility of the stock markets and global economy, the interest rate rise in September is less compelling. This resulted in boosting the sentiments in the market. However, it is also important to note that during the conference for central bankers in Jackson Hole, other FOMC members were of the view that it was too early to tell what the impact might be.
Some important data figures for the US economy are important to note here. The personal expenditures consumption index (a measure of inflation) rose 0.1% from the previous month and 1.2% since July 2014. Whereas the total incomes rose 0.4% in July. The US GDP for Q2 was revised upwards to 3.7% from 2.3% with increases to business investment and consumer spending both. Orders for core capital goods (a proxy for business investment) were up 2.2%, the largest increase in 13 months. Whereas, in July the durable goods orders rose by 2%, overcoming the forecasts for a 0.4% decline.
The German GDP rose 0.4% in the second quarter, following an increase of 0.3% in the first three months of the year. This resulted in improving the German business confidence unexpectedly.
Haruhiko Kuroda, the Japanese governor said that the central bank would have to make adjustments to the level of monetary stimulus, if necessary, in order to prevent the falling oil prices from stopping the central bank achieving its 2% inflation target.