Weekly Market Update
Notable events over the last week
- In another week categorised by considerable market volatility, the European Central Bank chief, Mario Draghi provided some reassurance to financial markets by hinting at the possibility of further monetary stimulus at its March meeting. Draghi suggested that the downside risks have increased amid emerging market uncertainty while euro-area inflation dynamics continue to be weaker than expected; implying that further stimulus may be required. The ECB currently pumps €60bn a month into markets however left its main interest rate unchanged at 0.05% during the December meeting, with the deposit rate at -0.3%. The message was welcomed by investors with European equity markets finishing broadly 2% higher on Thursday, although Italian equities, which have suffered significantly of late, stood out after the FTSE MIB finished with a 4.20% gain.
- On Thursday, China’s Vice President Li Yuanchao, confirmed that the country is willing to keep intervening in the stock market in order to stabilise it. Li recognised that the stock market needs to be more dynamic but that it also requires strengthened regulation. The message was reiterated by Fang Xinghai, vice chairman of the China Securities Regulatory Commission, stating that the government is prepared to intervene “if the liquidity problems are quite severe and major and could lead to systemic risks”.
- The Bank of Japan Governor, Haruhiko Kuroda, also spoke last week hinting that further quantitative easing maybe on the cards, emphasising that “We won’t hesitate adjusting policy, if necessary to achieve our 2% price target”. Kuroda also added that he would carefully watch how recent global market turbulence affects Japan’s economy and prices and that there was no limitation to the BOJ’s policy tools if it were to expand monetary stimulus.
- Earlier in the week China reported real GDP growth for 2015 of 6.9%, broadly in line with the government’s target of 7% and analyst expectations. The slowdown was attributed to the slow growth in the secondary sector from 7.3% in 2014 to 6.1% in 2015. The tertiary sector growth actually picked up, from 7.8% from 8.3% showing that China’s economic structure is becoming more balanced. In 2015, the contribution of consumption to GDP growth reached 66.4%, the highest since 2001 and the service sector contributed 50.5% of GDP growth in 2015.
- In the US, the most important data for the week came on Friday as the flash U.S. manufacturing PMI rebounded in January after hitting a 38-month low in December. The flash PMI rose to 52.7 from 51.2 in December, ahead of expectations of 51.0, as output and orders both picked up, although job creation fell to a four-month low and manufacturers cut inventories. Existing home sales were much better than expected at 14.7% MoM in December (vs. 9.2% expected), however CPI fell 0.1% MoM in December after no change in November. For 2015, prices rose 0.7% YoY, below expectations of a 0.8% increase. Core inflation which strips energy and food prices, edged up 0.1% in December after rising 0.2% for three straight months. Core CPI rose 2.1% for 2015, the largest gain since July 2012.
Q4 2015 earnings season update
- Of the 73 companies in the S&P 500 that have reported earnings to date for Q4 2015, 73% have reported earnings above analyst expectations and the long-term average of 63%.Q4 earnings are expected to decline 4.3% YoY although is expected to remain up 1% excluding energy. Financials was the most heavily represented sector this week, with 19 companies reporting. Of these companies, 68% posted positive earnings surprises while 58% beat revenue estimates.
- McDonalds Corp was scheduled to present on Monday followed by Apple, 3M and Procter and Gamble on Tuesday. Wednesday will see Facebook and Boeing release earnings. On Thursday we will hear from Ford, Visa and Microsoft, finishing with MasterCard and Chevron reporting on Friday.
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