Continued oil price weakness weighed on investor sentiment
> In the US, the S&P 500 Index reached a new record high on Monday, but edged back thereafter on tumbling oil prices, before finishingslightly higher (+0.2%). Unsurprisingly, the steepest losses occurred in energy stocks. Meanwhile, healthcare stocks gained strongly after Senate Republicans revealed draft legislation to replace the Affordable Care Act. Technology stocks also rose, but are still trading below their peak reached earlier this month.
> Similarly, European stocks rose early in the week, supported by the market-friendly outcome of the French parliamentary elections, although gains unwound on the back of the oil price slump. Most major bourses declined, with the regional EURO STOXX 50 Index closing little changed.
> Asian stock markets rose last week, led by technology shares. The decision of MSCI to include certain onshore Chinese stocks (A-shares) into its indices underpinned a strong rally in China, with the Shanghai Stock Exchange Composite Index closing up 1.1%. The tech rally benefited Taiwanese equities, with the tech-heavy TAIEX index up 2.2%, and to a lesser degree Japanese stocks, with the Nikkei 225 Index up 0.9%.
US Treasuries and UK gilts little changed amid hawkish central bank rhetoric; other European bonds rose
> US Treasuries were little changed last week. Downward pressure came from New York Fed President William Dudley’s warning that pausing the policy-tightening cycle could raise inflation risks. However, losses were pared back on a sharp decline in crude oil prices and comments by Chicago Fed President Charles Evans, who emphasised the gradual approach to policy normalisation, stating that the Fed “can go until December and make a judgement.” Overall, the Treasury yield curve bear flattened, with two-year yields closing up 2 bps to 1.34%, while, at the longer end, 10-year yields were fell 1 bp to 2.14%.
> Most longer-dated European government bonds rose (yields fell) as subdued risk appetite and falling oil prices helped support demand for fixed income assets. Benchmark German 10-year bund yields ended 3 bps lower at 0.25% and equivalent-maturity Greek bonds led gains in the periphery, supported by the previous week’s deal to unlock a fresh tranche of bailout financing. Ten-year UK gilts underperformed (yields edged up 1 bp to 1.03%) following a hawkish turn by Bank of England (BoE) Chief Economist Andrew Haldane.
Oil prices slumped for another week amid continuing oversupply fears
> Crude oil prices fell for the fifth straight week, with WTI and Brent sliding 3.9% and 3.6% to USD43.0 per barrel and USD45.7 per barrel, respectively. Investors remain concerned that the market is oversupplied amid increasing output from Libya and the US. These moves came despite a decline in US crude inventories last week.
> Gold prices were little changed last week (+0.2% to USD1,257), with bearish sentiment mainly driven by expectations around further US rate hikes this year, and support coming from generally subdued risk appetite.