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Weekly market review

Week ending 12th February 2016


Stocks

Global equity markets retreated, with the bank sector leading the way after Federal Reserve (Fed) Chairman Janet Yellen warned that financial conditions are tightening faster than policymakers anticipated, and investors cast a suspicious eye on the wider European banking system in light of the €350bn non-performing loans held by Italian banks. Deutsche bank was also at the centre of the storm. Its share price is down 40% this year and bond holders began to fear it would not be able to repay its loans. The disconnect between market and Fed views drove the US stock market to a 0.83% loss, Germany’s DAX index (30 major German companies trading on the Frankfurt Stock Exchange) fell by 3.4% and Japan’s TOPIX (Japan’s own stock market) dropped 12.6%. Our own stock market rose by a modest 0.3%.

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Fixed Income

Fed Chairman Janet Yellen’s generally cautious remarks – which stressed that the Fed is not on a “pre-set” path, given 2016’s market volatility– weighed on bond yields and deepened concerns that interest rate increases are likely to be delayed. The US 10-year bond yield hit a one-year low, closing at 1.74%. Japan’s 10-year bond yield fell into negative territory for the first time ever as investors turned to government assets. The UK 10-year bond yield stayed fairly flat, increasing by 0.1%.

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Currencies

The US dollar posted steep losses as investors digested cautious Fed remarks and dimmed their rate-hike expectations. Japan’s Yen rallied 2.1%, highlighting how markets have shrugged off the Bank of Japan’s negative rate policy and investors fled to the currency for ‘safety’. The euro soared 1.5% against the dollar, topping $1.13, a first since October 2015, whereas the pound increased 0.4% against the US dollar.



Commodities

West Texas Intermediate Crude Oil tumbled to a 12-year low as supplies at Cushing, Oklahoma, hit a fresh high last week, although speculation of possible global supply cuts curbed some losses on Friday. The International Energy Agency continued to forecast oil prices staying lower for longer, a contrast to the late week views on a possible deal to cut oil supplies.

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Source: Goldman Sachs Asset Management. Adapted by FundCalibre. This material is for information purposes only and does not in any way constitute financial advice.


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