Weekly Global Market Wrap: Stimulus Hopes, China, Drown Out Biggest Story

November 18th, 2013
in contributors

by Cliff Wachtel, FX Empire

The really important news last week was mostly missed.

The following is a partial summary of the conclusions from the fxempire.com weekly analysts' meeting in which we share thoughts and conclusions about the common drivers of major global asset markets: global stocks and the leading stock indexes, forex, commodities, and bonds.

Follow up:

It's a quick summary of last week's stock market action, a review of what moved Asia, Europe, and the US each day, and serves as a quick summary review of last week's global market movers. It's our starting point for our follow up articles on:

  • Lessons For The Coming Week And Beyond
  • Coming Week Top Market Movers
  • EURUSD Outlook
  • Related Special Feature: Did we just see the catalyst for the next stage of the EU crisis?

The exact mix varies somewhat from week to week, depending on what's most important, according to our read of the prior and likely coming week market action, news, and events. You can find all of these here as they come out over the weekend. You can skim it in about 2 minutes, or take a bit more time to study it. A useful weekly summary of what's driving global asset markets.

MONDAY: Indexes higher on combination of technical bounce off support fueled by US jobs report

Asia: Mixed mostly higher as Asian indexes play catch up to the US bounce after the better than expected jobs reports provided an excuse for a technical bounce that had been missing when the strong GDP figures released Thursday caused a selloff on early taper fears.

Europe: All indexes were up between 0.3 - 0.8% on similar optimism driven technical bounce, plus additional bullish fuel from signs of increasing M&A activity after two big acquisitions in the pharmaceutical sector.

US stocks made slight gains on quiet Veterans day trading as no news and a closed bond market (so no changes in benchmark interest rates) left stocks to drift. While last week's GDP and jobs data were positive surprises, uncertainty about how indicative of growth they really were, or how the Fed would interpret them, prevented any further meaningful burst of risk asset buying.

TUESDAY: Light calendar leaves markets to drop on early taper fears from strong US data, weak European earnings, China's Third Plenum disappointing lack of reform details

Asian indexes were mixed as a light calendar and lack of other drivers kept markets quiet. Strong US data from the prior week may have fed bearish early taper fears as well. China's disappointing third plenum results, which offered too few details on planned reforms, may have been a factor as well.

European indexes were all down 0.3 -0.8% as a similarly light calendar left investors to focus on the poor earnings season for Europe. Results from about 50% of the companies on the pan-European STOXX 600 index that have reported quarterly earnings so far have missed profit forecasts, per Thomson Reuters StarMine. Nearly 66% have missed revenue forecasts. Some speculate that early taper fears from last week's strong US data may have been a factor as well, as well falling inflation in Germany, Italy, feeding deflation fears.

US indexes finished modestly lower overall on continued light trading, as investors puzzled over conflicting comments from Fed officials on when the central bank might pull back on stimulus. There was no meaningful data from the calendar, leaving traders to remain focused on the conflicting fed remarks of the day.

WEDNESDAY: Asia, Europe down on Fed taper uncertainty, US indexes higher on Yellin dovish comments, glimmer of hope for US holiday shopping from retailer Macy's

Asian indexes were down on fears that Janet Yellin might feed early taper fears in her confirmation hearing remarks, if for no other reason than to pacify congressman who think her too dovish. The disappointing communique of China's third plenum, which lacked specifics on hoped for reforms, and seemed at times contradictory, weighted on Chinese shares.

European indexes were mostly down 0.2 - 0.6% on uncertainty about both Fed and ECB monetary policy after Tuesday's contradictory remarks from FOMC officials, however losses were limited as a European Central Bank official was said the ECB could adopt negative interest rates or purchase assets from banks if needed to lift inflation

US indexes closed solidly higher, with the S&P 500 breaching, then closing just under, a new all-time high, on hopes of dovish remarks from incoming Fed Chairperson Janet Yellin at her congressional confirmation hearings Thursday, following leaks on her prepared remarks. Solid Q3 earnings from retailer Macy's boosted hope for the retail sector for the coming "make-or-break" holiday shopping season

THURSDAY: Yellin's dovish comments, positive European earnings offer excuse for Asian, European indexes to bounce off support, for US indexes to continue higher

Asian stocks bounced 0.6-2% off of six-week lows by Federal Reserve Vice Chair Janet Yellen's dovish comments, which indicated that she'd continue stimulus support for a longer period than markets had previously anticipated. Yellen, in remarks released ahead of her closely-watched Senate confirmation hearing on Thursday to succeed Fed chief Ben Bernanke, said the Fed has "more work to do" to help the economy, indicating she was in no hurry to start tapering stimulus. The comments sent U.S.

All European indexes were up about 0.5-1%, boosted by

  1. Solid earnings from Bouygues and Zurich Insurance
  2. Incoming Fed Chairman Janet Yellin's dovish confirmation hearings remarks, which indicate that the U.S. Federal Reserve may be in no hurry to scale back stimulus under her leadership. That's good news for European equities, which also benefit from US QE. Per Thomson Reuters Lipper Friday concluded the 20th straight week of inflows from U.S investors.
  3. Bullish delayed reaction to comments from ECB executive board member Peter Praet Wednesday afternoon EST (after European markets were closed) that indicated further easing from the ECB. He sought to ease concerns that the ECB was running out of stimulus tools, and explicitly mentioned negative interest rates (penalizes banks for hording cash with the ECB) and European variants of US style QE. See here for details.

US indexes were modestly higher on the same news, particularly points 2 and 3.

FRIDAY: Asia up on delayed reaction to Thursday's dovish Yellin comments plus bullish leaked details on China's Third Plenum reforms, European stocks up on these factors too plus on hints of further easing from ECB official

Asian indexes we all up strongly, Japan, Korea up almost 2%, China 1.7%, Australia almost 1% on combination of Yellin dovish remarks, leaked document from China Third Plenum revealing previously lacking details on market friendly reforms, and strong earnings results from Japanese financial companies as well. These all help feed rising risk appetite which weakens the JPY, and thus strengthens Nikkei gains. See our post on Lessons for the Coming Week here for details.

EU Most indexes modestly higher on rising hopes for further easing policies from the ECB, with the above bullish Asian drivers adding some assist. These hopes were fed by remarks in a Wednesday Wall Street Journal interview with ECB member Peter Praet. Further easing, or at least the belief that such easing is coming, benefits European equities in two ways:

  • As in the US or Japan, it encourages yield seeking investors to invest in equities
  • It provides an indirect boost for EU stocks because it weakens the EUR. The relatively strong EUR has been blamed for the poor EU Q3 earnings season. See our post on Lessons for the Coming Week here for details.

The 3 major US indexes were solidly higher on a combination of the bullish effects of the above market drivers in Asia and Europe, as well as continued hopes for a longer than previously expected period of US stimulus. These were fed by both Janet Yellin's comments from the prior two days, and a batch of soft US data Friday.

So what did it all mean? See our post on Lessons for the Coming Week here for details on the lessons we learned for the coming week and beyond, from both these market movers and from key news and events.

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