AM Report 16th March 15

ajz

Global Wrap
European stocks finished the first week of the implementation of the ECB’s massive bond buying program on a mildly optimistic note with the Stoxx600 up 0.32% Friday for a 0.62% gain on the week. The QE stimulus plan will see it buy 1.14 trillion euros ($1.57 trillion) worth of bonds over the next 18 months. The aim is to pump liquidity into the system so as to ward off deflation and spur growth in the single currency area. With the extra cash pumping around the system and the sharp falls in the EUR currency helping the zone’s export competitiveness, one would expect further gains for Euro area stocks just as has been seen in the U.S. and Japan with their similar programs. No such luck with the U.S. equity markets as the Fed are on the totally opposite side to the ECB, having withdrawn out of their QE program and inching towards raising rates. With the stronger USD now inhibiting U.S. multi-national earnings, U.S. bourses face headwinds. As such the S&P500 ended down 0.61% and the Dow down 0.82% on the day with the big board 500 down 0.92% on the week. The falls mark the 3rd straight weekly decline for major U.S. bourses which are in negative territory for the year.

The USD strengthened across the board on Friday night. The USD index closed above 100.00 for the first time since early-2003.

A 2nd month of pullback for the University of Michigan consumer sentiment survey. The preliminary March sentiment index declined to 91.2 from a final February reading of 95.4, which was below January’s 98.1. January’s reading had been the gauge’s highest reading in 11 years. Despite the pull back of recent months the index remains buoyant and perhaps the most telling aspect of the report was the 1 year inflation measure which rose to 3.0% from 2.8% in Feb whilst the 5 year measure edged up to 2.8% from 2.7%.

As the implementation of the ECB’s bond buy program takes European bond prices to extraordinary pricey levels (low yields), portfolio flows look set to change. A la Norway's sovereign wealth fund which notified the market that it will continue to sell down its European government debt portfolio (at brilliant levels) and may spend all of its new cash inflow in 2015 on real estate.

Chinese Premier Li as on the wires over the weekend. He said it won’t be easy to grow the Chinese economy by 7% in 2015 but will step up targeted measures to keep growth from slowing too much if needed.

The broad based CRB commodity index settled at its lowest level in 6 years as WTI crude fell almost 10% on the week as reports emerge of U.S. storage facilities almost overflowing with product. The IEA’s monthly report noted that US “stocks may soon test storage capacity limits which would inevitably lead to renewed price weakness”. The WTI price fell 4.7%, to US$44.80/barrel, not far from its late-Jan post-GFC lows.