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In the markets: What to watch this week

Fears mounted last week as the global economic outlook was further threatened by new equity lows led by a steep sell-off in European banks. This latest development coupled with the strain of falling oil prices and a slowdown in China sent investor money fleeing for the most traditional safe-haven assets.

Greece’s government met with representatives from the EU, International Monetary Fund (IMF), European Central Bank (ECB) and the eurozone’s bailout fund last week for the first assessment of the country’s compliance with reforms agreed upon to secure €85bn of bailout aid. Policymakers hope that the review will be concluded by the end of this month. Last week Greek stocks crashed 11.5% to lows last seen in 1990.

European indices crashed to two-and-a-half-year lows led by the banking sector, which declined about 10% last week and 28% for the year over profitability concerns in a low-growth, low-interest-rate environment. Sweden’s central bank, amidst the concerns, cut its benchmark repo rate further below zero – pouring fuel on the fire. The ECB president, Mario Draghi, speaks on monetary affairs on Monday and on Thursday releases the ECB’s monetary policy meeting accounts.

The most favourable government bonds soared as markets priced in a sharp slowdown. MSCI’s broadest gauge of global stock markets fell more than 20% since its record high last May confirming global stocks were in a bear market. Gold surged to a one-year high of $1 262.90 per ounce up almost 19% so far this year. We at Capilis do not expect a major financial crisis or collapse such as the Lehman crisis, but it is hard to be bullish on the market in the near future.

Locally, with the State of the Nation Address not much of a market mover, gold and platinum sector stocks were sharply higher even though mining and manufacturing production teetered at 0.3% and 0.4% month-on-month growth respectively. In all likelihood foreign investors were bargain-hunting for cheap resource stocks while the rand was close to all-time lows and gold was on the rise. Inflation data on Wednesday will provide more clues to the effect of a weak rand on local prices.

Fed Chair Janet Yellen emphasised that the Fed was not on a “pre-set” path to policy “normalisation” indicating that a March hike was off the table. She acknowledged that the weakened economy and steep slide in stocks was tightening financial conditions faster than anticipated. But Yellen remained optimistic about the labour market, which provided positive indicators last week. After Federal Open Market Committee (FOMC) meeting minutes are released on Wednesday, investors will continue to keep a close eye on unemployment claims due on Thursday and any positive improvement in CPI on Friday for future policy clues.

Crude oil inventories due on Thursday and developments in talks between Organization of the Petroleum Exporting Countries (Opec) and non-Opec members remain market themes. The UAE’s energy minister, Suhail bin Mohammed al-Mazrouei, said Opec was willing to talk about cutting output but some market participants dismissed this as further jawboning.

China returns to the market with trade data hitting the headlines on Monday after a week long Lunar New Year celebrations.

Other market-moving data includes:

Monday:

  • Japan Prelim GDP

Tuesday:

  • Great Britain CPI
  • EU German ZEW Economic Sentiment

Wednesday:

  • Great Britain Employment
  • SA Retail Sales
  • US Building permits ad PPI

Thursday:

  • US Philly Fed Manufacturing Index

Friday:

  • Great Britain Retail Sales

Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.

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