Weekly Market Overview – US jobs report eases inflation fears

Mon 12 Mar 2018

Markets had a strong run last week with all major equity markets posting gains in both local and GBP terms, except for Japan which suffered a loss in Sterling. The market seems to have fully rebounded following the sell–off at the beginning of February, with the Nasdaq back at a record high. US equities led the way with returns of 3% in GBP and 3.6% in USD. This was followed by European equities which rose 2.5% in Sterling and 3.1% in Euros. Global equities and UK large caps both returned 2.3% for the week, with Emerging Market’s gaining 1.6%, all in Sterling. Japan was the laggard with a return of just 0.4% in Yen, but -1.3% in Pounds. Global yields remained largely unchanged with US 10 Year Treasury yields rising just 3 bps and UK 10 Year Gilt yields 1.8 bps, while German 10 Year Bunds fell 0.3 bps. Sterling gained against most major currencies, appreciating 1.3% vs JPY, 0.4% vs EUR and 0.3% against USD. Gold and Metals fell -0.5% and -0.7% respectively, while Oil gained 0.7%.

Maybe the most important risk we have highlighted is the abrupt end to the easy money era, especially if this doesn’t come as a consequence of explosive growth and a significant expansion in private investment. Last week the ECB dropped its pledge to increase QE if needed to assist growth. With the EU economy growing at 2.9% it seems reasonable. However, put together with the Fed’s newfound hawkishness and the learning curve of its new board, it looks like the “whatever it takes” era may be coming to an end. This isn’t necessarily bad news as a robust economy has fuelled the best earnings season in almost 7 years, and liquidity is still ample. However, investors should take note of how traders cheered when worse than expected wage growth data came out on Friday. This means that the “fast money”, which usually has lower volumes than “slow money” but sets the tone for the market, is still focused on monetary accommodation.

Please read our full Market Update Week 10