Macro Weekly – Markets ignore positive signs

by: Han de Jong , Nick Kounis , Roy Teo

Macro Weekly - 4 August 2014 - Markets ignore positive signs.pdf ()
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  • Big Picture: While equity markets in Europe and the US lost ground last week, and volatility on these markets rose, economic indicators improved across the board. Challenges remain, but economic conditions in the eurozone are improving and forward-looking indicators suggest a further improvement lies ahead. The ECB’s bank lending survey contained important positive messages. The US economy is moving along quite nicely, while most Asian economies saw business confidence rise in July.
  • Rates: Government bonds continued to rally, with German Bund yields hitting a new record low. Expectations of further ECB stimulus and falling inflation have supported the market. Another factor that has been mentioned as supporting US and eurozone government bonds has been significant buying from Asia, especially central banks. However, evidence of this is patchy. The factors that have supported the bond market look set to persist near term. However, we expect government bond yields to rise later in the year and in 2015.
  • FX: The US dollar was the clear winner last week as confidence in the US economy built, reflecting that GDP rebounded sharply in the second quarter. Emerging market currencies generally underperformed, but the Chinese yuan was supported by more optimism about the economic outlook. Carry trades are at risk as volatility expectations in currency markets have risen. Major central banks are widely expected to leave monetary policy unchanged this week.

140804-Weekly tabel