Global equities rose this week amid upbeat economic data releases and a more conciliatory tone adopted by US President Donald Trump
A host of US Federal Reserve (Fed) members talked up the likelihood of a March rate hike, pulling global bond yields higher
Survey data in the US suggested consumer confidence and manufacturing activity levels are at multi-year highs
In the coming week, investors’ attention will turn to the European Central Bank’s (ECB) monetary policy meeting and the latest US labour market data
US and European equity markets edge higher amid upbeat global growth optimism
US equities rallied this week, as the latest survey data reinforced optimism over the health of the US economy. Particularly encouraging was a 16-year high in the Conference Board Consumer Confidence Index, and a stronger than expected ISM Manufacturing and Non-Manufacturing PMI. President Donald Trump’s more conciliatory speech to the US Congress also helped allay fears of drastic policy measures by the current administration. The S&P 500 Index rose to a fresh record high on Wednesday, before paring gains to close up (+0.7%) for the sixth consecutive week.
Similarly, global growth optimism pushed European equities higher this week. Financials outperformed, as the European Banking Authority report concluded that “on average, European banks largely fulfil the future regulatory capital requirements.” Another leg up in European government bond yields also boosted the outlook for bank profitability. Overall, the regional EURO STOXX 50 Index closed the week at a 14-month high (+3.0%) of 3,403. Elsewhere, France’s CAC 40 rebounded strongly from last week’s softness (+3.1%), led by a rally in utilities following an upbeat corporate earnings update. All other major national stock indices in the region closed up.
Most Asian stock markets fell over the week, especially in Hong Kong, amid concerns over the impact of higher US interest rates. Korean stocks dropped sharply on Friday, as China imposed travel restrictions to Chinese tourists visiting the country, with the KOSPI finishing the week 0.7% lower. Japanese stocks outperformed, with the Nikkei 225 Index ending the week up 1.0%, amid yen depreciation.
Treasuries fall on higher Fed rate hike expectations
US Treasuries fell (yields rose) this week as the final week of Fed commentary before the 15 March FOMC meeting presented a more hawkish and assured tone about the prospect of a near-term hike. Broadly stronger than expected data was complemented by the more constructive tone struck by President Donald Trump at his first address to Congress. This saw yields drift higher through the week. Overall, 10-year Treasury yields gained 17 bps to 2.48%, with two-year yields also gaining (+16 bps) to 1.31%.
In European bond markets, hawkish Fedspeak, continued European economic data strength and opinion polls giving an improved chance that a pro-European Union candidate may win the French election saw German 10-year bunds rise 17 bps higher to 0.35%, while French 10-year yields rose 1 bp to 0.94%. Italian 10-year bond yields fell 9 bps to 2.09%, driven by renewed market optimism around the Italian bank sector.
US dollar gains amid hawkish Fedspeak
The pound sterling fell (-1.4%) against the US dollar this week as a host of hawkish comments from FOMC participants raised the market’s expectation of a March rate hike, pushing up demand for the greenback. On Friday, the pound was also weighed down by February’s PMI data, which pointed to the slowest pace of expansion in the UK’s services sector since September last year. Meanwhile, the euro swung between gains and losses to end little changed against the US dollar.
Most Asian currencies depreciated against the US dollar over the week on heightened expectations of a rate hike by the Fed at its March meeting. The yen underperformed (-1.7%), while the decline of the Korean won (-2.2%) came on the back of travel restrictions imposed by Beijing on Chinese tourists visiting South Korea. The Indian rupee and Hong Kong dollar was the regional outperformer, as Q4 GDP growth surprised to the upside.
Oil hit by stronger dollar, OPEC and US production concerns
Amid a stronger US dollar, crude oil prices dipped slightly this week, with most losses coming on Thursday. Downward pressure also came from data showing another increase in the US rig count and crude inventories last week, as well as OPEC confirming that five members (most significantly Iraq) have not made serious cuts to their production following last year’s output cut deal. Overall, Brent crude oil prices fell (-0.4% to USD55.8 per barrel) while WTI underperformed (-1.5% to USD53.2 per barrel).
Gold prices also declined this week (-1.8% to USD1,235), mainly on the back of the market pricing in a significantly higher chance of near-term Fed rate hikes, weighing on the non-yield-generating asset.