by Stephen Roberts | Apr 14, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
US stock markets were softer over the week, with S&P 500 down 2.5%. The technology sector has been hardest hit with the market questioning valuations. NASSAQ Biotech index has fallen 21% from its February peak and the overall NASDAQ fell below 4,000 after reaching 4,359 in early March. US Financial stocks also underperformed towards the tail end of the week after JPMorgan missed revenue estimates. Revenues were softer across the board, with a 17% decrease in trading revenues leading the way. Rates markets rallied, with US 30yr Treasuries falling below 3.50% for the first time since mid-2013.
FOMC minutes were released mid-week and there was no discussion of a rate rise in the coming six months after the end of QE as had been suggested by Janet Yellen and there was a suggestion amongst members that markets may have misinterpreted the fed as overstating the pace of future rate hikes. Most of the participants attributed the majority of recent data weakness to weather related disruptions, although other factors such as higher mortgage rates were acknowledged. Several participants pointed to factors such as elevated levels of long term unemployment and part-time workers as evidence that there might be considerably more labour market slack than the unemployment rate alone suggests. All in all, a more dovish FED than the market had expected, with the market pushing out rate hike expectations.
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by Stephen Roberts | Apr 7, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
Risk assets were mostly mixed in March amid uncertainty about the strength of global economic growth and concern about flaring tension between Russia and the Ukraine. US economic indicators for February and March were consistent with a moderate recovery after the disruption from severe winter weather. However, the growth pullback in the world’s second biggest economy, China, around its New Year celebrations appeared more pronounced than usual, raising issues of the cost to near-term growth prospects from the reform efforts of the authorities on many fronts. Major equity markets were mixed in March ranging from a 3.1% fall for the British FTSE 100 to a 0.7% gain for the US S&P 500. The Australian ASX 200 ended down by 0.1% with resource stocks weighing on mostly softer than expected economic news from China.
Credit markets finished March little changed from where they ended February, but after undulating through the month mostly in tandem with the fortunes of equity markets. Major bond markets were a little weaker through March, but remain resilient in the face of the US Federal Reserve continuing to wind back its asset purchase programme or quantitative easing. The Reserve Bank of Australia also made it clearer in various comments from senior officials that the next local cash rate move, when it eventually comes, is likely to be a hike, not a cut. US 10 year and 30 year treasury yields finished March at respectively 2.76% and 3.61%, 11 basis points (bp) and 3bp higher respectively than at the end of February. The Australian 10 year bond yield rose by 7bp, finishing March at 4.09%.
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