Wrap up – last week   

Equities make gains but nervousness surrounding the French elections holds back the advance

Global equities generally moved higher, with some markets seeing their strongest weekly advances for more than a month. However, the overall rise masks ongoing tensions in Europe’s periphery: market participants remain concerned about unsustainable borrowing costs, most notably in Spain. Although the Spanish bond auctions themselves passed without incident, bond investors were in a bearish mood, favouring ‘core’ sovereigns with yields on bunds and treasuries edging lower (prices rising) as Italian yields nudged higher. French 10-year yields also hit three-month highs on Friday, fuelled by nervousness about the outcome to the first round of the presidential elections. There are concerns that a victory by Francois Hollande, the socialist candidate, in the second round in May could undo the delicate balance of power in the Eurozone and scupper austerity measures. Trends in commodity markets also reflected a split between ‘risk-off’ and ‘risk-on’: Brent Crude and West Texas Intermediate diverged (Brent down; WTI up), and gold slipped marginally.

In macroeconomic news, the ONS (Office of National Statistics) revealed that UK retail sales had surged to their biggest monthly rise in over a year. While some critics say this was the result of petrol ‘panic buying’ as consumers feared a fuel strike, other experts see it as supporting evidence that the UK consumer is becoming more optimistic about the economic climate. Sterling gained against the US dollar (and is approaching a six-month high versus the currency) on expectations that the Bank of England may become more hawkish. The Ifo business climate index for Germany edged up to 109.9 in April.

Shaping the markets – this week

Critical week for bellwether data, with US GDP data and Apple quarterly results

This week marks a busy period for data releases from the US. Tuesday sees the new home sales figure for March, which is expected to rise marginally on February’s monthly figure of 313,000, offsetting this might be a moderation in the Conference Board’s Consumer Confidence Index to below March’s reading of 70.2. On Wednesday, durable goods orders are expected to decline 1.3% month-on-month (m-o-m) in March, although stripping out volatile aerospace orders may leave the underlying change positive. The US Federal Reserve also has its Federal Open Market Committee meeting; expectations are for no change to policy although Chairman Ben Bernanke’s post-meeting comments will be pored over for any signals. Friday brings the release of the preliminary first quarter gross domestic product (GDP) data: consensus is looking for an annualised quarter-on-quarter (q-o-q) gain of 2.5%. Within the corporate world investors will be looking at Apple, which delivers its latest quarterly result on Tuesday.

Elsewhere, on Monday, the Purchasing Manager Index for Eurozone manufacturing is released, with expectations that it will remain in contraction territory. Wednesday sees the UK first quarter GDP release with weak construction numbers potentially dragging the figure into negative territory. On Thursday, the European Commission releases its economic sentiment indicators, with confidence expected to have trended sideways. Friday is a busy day for releases from Japan. The unemployment rate for March is expected to fall slightly to 4.4%, whilst national consumer price inflation should continue to show deflation easing, with a rise of 0.1% year-on-year in March. Industrial production is projected to have expanded by 2.0% m-o-m, although month-on-month retail sales, which have been strong in recent releases, may slip back in figures covering March.

Markets in numbers

World equities

Index

% 1W

% YTD

S&P 500 Composite

1378.53

0.6

9.6

Dow Jones Industrials

13029.26

1.4

6.6

NASDAQ Composite

3000.45

-0.4

15.2

FTSE 100

5772.15

2.1

3.6

Euro STOXX 600

257.79

1.7

5.4

Nikkei 225

9561.36

-0.8

13.1

Hang Seng

21010.64

1.5

14.0

Benchmark government bonds

Yield

1W /bp

YTD /bp

US Treasury – 10 year

1.97

-2.8

9.5

UK Gilt – 10 year

2.08

13.9

10.4

German Bund – 10 year

1.62

-2.6

-20.4

Japanese JGB – 10 year

0.93

-1.3

-5.4

Credit indices

Yield

1W /bp

YTD /bp

IBOXX £ Non-gilts All maturities

4.87

14.6

-9.0

ITRAXX Crossover 5 Year (MID)*

682.06

37.2

#NA 

Volatility index

Index

% 1W

% YTD

CBOE PX Volatility – VIX index

17.44

-10.8

-25.5

Commodities

Index

% 1W

% YTD

Brent Oil ($/Barrel)

119.32

-1.5

10.2

Gold Bullion $/ Troy Oz

1641.59

-1.6

4.3

Currencies

vs $

vs £

 

¥

81.61

131.5

 

$

 

1.61

 

Euro

1.321

1.220

 

Source: Datastream. * Spread in basis points. Past performance is not a guide to future performance.

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