Weekly Market Update
Notable events over the last week
- China dominated headlines again as its main stock market benchmark, the Shanghai Composite, entered a bear market on Friday. The index has fallen more than 20% from its December 2015 high, and therefore by definition moves into bear market territory. From its June peak, the index has fallen nearly 44% and 18% YTD. Markets fell on the news that Chinese banks were no longer accepting stocks as collateral for loans and that demand for bank loans remains weak with banks wary of increasing lending to businesses.
- In the US, the Fed’s Beige Book released last week suggested that the majority of the Fed’s 12 districts reported economic growth in the past 6 weeks. The report focused on further labour market improvements, noting last month’s strong jobs report, however emphasised the lack of wage pressure as ‘price increases tended to be minimal’ with districts reporting ‘little overall change in wage and price pressures’. Comments from the Fed officials were more downbeat with the Boston Fed President, Rosengren noting that ‘policy makers should take seriously the potential downside risks to their economic forecasts and manage those risks as we think about the appropriate path for monetary policy’. Bullard, usually a more hawkish member, commented that ‘with renewed declines in crude oil prices in recent weeks, the associated decline in market-based inflation expectations measures is becoming worrisome’.
- The underwhelming sentiment continued in the US on the announcement of December retail sales. Retailers saw a -0.1% decline, in line with expectations, in sales for December from the prior month, while the ex auto measure unexpectedly fell 0.1% MoM vs. +0.2% expected. For 2015, retail sales rose a disappointing 2.1%, the slowest sales growth since 2009. In addition, industrial production last month also fell more than expected -0.4% MoM vs. -0.2% expected and it was unsurprising to see manufacturing production also miss, -0.1% MoM vs. 0.0% expected, while business inventories in November, -0.2% MoM vs. -0.1% expected, were also soft.
- Over the weekend the UN sanctions on Iran were lifted after it was seen to complete steps outlined in the agreement set last year. The reduced sanctions mean that Iran can now pick up its production of nuclear fuel which is likely to put further pressure on the price of WTI and Brent crude which were down 5.71% and 6.28% respectively on Friday on anticipation of the news. Despite the newly relaxed global legislation, the US was quick to impose restrictions over Iran’s ballistic missile programme which is likely to lead to further tension between the two nations.
- The European Central Bank released an account of its December meeting suggesting that some ECB officials had ‘expressed a preference for a 20bp cut in the deposit facility rate’. The text highlighted that policy action was widely seen as warranted and a ‘reassessment could made in the future’ about increasing the size of monthly purchases. The ECB surprised markets in December by not implementing more aggressive stimulus measures and only committing to lower its deposit rate by 10bps to -0.3% and to extend, and not increase, its quantitative easing programme.
Q4 2015 earnings season update
- Corporate earnings for the final quarter of 2015 kicked off last week. The majority of companies are yet to report however it is worth noting that among the institutions that have reported thus far, most have beat on the bottom line although many have missed revenue growth.
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