weekly review Week ending 30 November 2014 OPEC decides not to cut oil production European government yields hit record lows US data disappoints, but equities set new record Growth remains subdued in Japan Hong Kong protests flare up The price of Brent crude oil continued to tumble last week, as the Organisation for Petroleum Exporting Countries (OPEC) decided not to cut output. The commodity fell by 5.3% last week, and has fallen below USD 70 a barrel at the time of writing the first time since 2009. This continued fall in price has started to weigh on energy stocks, and in turn has put pressure on equity markets. In Australia, equities returned 0.2% in Australian dollar terms over the week, but fell by 1.6% on Friday, following the OPEC summit. Emerging market countries dependent on energy exports also suffered. Under pressure from Western sanctions, as well as the price of oil, the Russian rouble rose above 50 roubles per US dollar for the first time in its history. In Europe, equity markets fared better, as expectations surrounding full-scale quantitative easing continue to heighten. German inflation numbers, as measured by the Harmonised Index of Consumer Prices (HICP), fell from +0.7% to +0.5% year-on-year in November. GDP growth, seasonally adjusted and measured quarter-on-quarter, for Europe s leading economy remained unchanged at 0.1%. Against this backdrop, the German 10-year Bund yield dropped below 0.7% for the first time, while the equivalent French 10-year government bond fell below 1.0% to also reach a record low. Facing meagre growth expectations, the new European Commission President, Jean Claude Juncker, announced an investment plan for Europe last week: the European Fund for Strategic Investment (EFSI). Mr Juncker aims to reach a total fund size of EUR 315 billion through leverage and private investors, but the plan has done little to excite markets. Investors called into question the financing of the fund, and whether it presents the significant fiscal expansion that many are calling for. In the US, data prints disappointed, although according to analysts seasonal factors may have weighed on the numbers. Pending home sales in the US declined by 1.1% (versus expectations of a 0.5% rise), and initial jobless claims reached an 11 week high of 313,000 (versus 288,000 expected). The Chicago Purchasing Managers Index (PMI) printed 60.8 having declined from October s 66.2, and printing below consensus forecasts of 63.0. The Consumer Confidence Index also came in below expectations (reading 88.7 versus 96.0 expected). Despite these numbers, however, the S&P 500 reached a 47 th record finish this year, and bucking the trend of bad data releases, third quarter GDP figures were revised up from 3.5% to 3.9%. Japan saw Consumer Price Index (CPI) ex Fresh Food fall for the third consecutive month to reach +2.9 year-on-year. When discounting the April sales-tax hike, the core print read +0.9%, which is a 13 month low. Retail sales numbers also disappointed, printing -1.4% month-on-month versus an expectation of -0.5%. Industrial production figures were positive, however, reading +0.2% month-on-month, versus consensus of a 0.6% drop. The Topix index added 0.7% and Japanese government bonds added 0.3%, in yen terms. Page 1 of 5
Elsewhere in Asia, the HSBC China Manufacturing PMI read 50.0, which was in line with consensus forecasts. According to Deutsche Bank, a breakdown of the data shows that the PMI for small and medium sized businesses is now below 50, indicating a contraction in activity and highlighting the slowing Chinese economy. Over the weekend, the on-going protests in Hong Kong also escalated, with the BBC reporting the arrest of 40 protestors. A number of police officers were also hurt, as clashes between the authorities and pro-democracy activists flared. Source: Bloomberg. Returns in US dollars unless otherwise stated. Asset class/region Developed markets equities Currency Week ending 28 November Currency returns Month to date YTD 2014 12 months United States USD 0.2% 2.6% 13.3% 16.1% United Kingdom GBP -0.5% 2.9% 2.8% 4.4% Continental Europe EUR 1.2% 4.1% 8.8% 9.6% Japan JPY 0.7% 5.8% 10.4% 14.1% Asia Pacific (ex Japan) USD 1.1% -1.3% 5.1% 4.2% Australia AUD 0.2% -3.3% 3.5% 4.0% Global USD 0.2% 2.0% 6.7% 8.9% Emerging markets equities Emerging Europe USD -3.0% -4.2% -17.0% -18.7% Emerging Asia USD 2.2% 0.2% 6.9% 6.2% Emerging Latin America USD -4.0% -4.6% -3.5% -5.1% BRICs USD 0.2% -1.3% 2.6% 1.2% MENA countries USD -2.5% -5.2% 11.8% 15.3% South Africa USD -3.6% 0.3% 9.4% 11.3% India USD 0.3% 1.8% 36.8% 42.7% Global emerging markets USD 0.1% -1.1% 2.5% 1.7% Bonds US Treasuries USD 0.7% 0.9% 5.8% 4.7% US Treasuries (inflation protected) USD 0.3% 0.3% 5.5% 3.8% US Corporate (investment grade) USD 0.8% 0.6% 7.3% 7.2% US High Yield USD 0.1% -0.7% 4.0% 4.6% UK Gilts GBP 1.5% 3.2% 12.6% 11.1% UK Corporate (investment grade) GBP 0.9% 2.3% 11.0% 9.8% Euro Government Bonds EUR 0.8% 1.4% 12.0% 11.4% Euro Corporate (investment grade) EUR 0.2% 0.6% 7.8% 7.4% Euro High Yield EUR 0.8% 0.5% -4.3% -2.3% Japanese Government JPY 0.3% 0.7% 3.5% 2.9% Australian Government AUD 1.3% 1.6% 9.2% 9.8% Global Government Bonds USD 0.6% -0.5% 1.0% 0.0% Global Bonds USD 0.5% -0.2% 1.5% 1.0% Global Convertible Bonds USD 0.7% 0.8% 0.6% 1.9% Emerging Market Bonds USD 0.3% -0.5% 8.8% 9.3% Source: Bloomberg Page 2 of 5
Asset class/region Property Currency Week ending 28 November Currency returns Month to date YTD 2014 12 months US Property Securities USD 1.7% 1.9% 26.6% 25.4% Australian Property Securities AUD 1.9% -0.1% 17.0% 13.6% Asia Property Securities USD 0.4% -1.0% 1.5% 0.7% Global Property Securities USD 1.3% 1.1% 14.0% 13.4% Currencies Euro USD 0.5% -0.6% -9.4% -8.5% UK Pound Sterling USD -0.1% -2.2% -5.5% -4.3% Japanese Yen USD 0.0% -5.6% -11.6% -14.3% Australian Dollar USD -1.9% -3.3% -4.6% -6.5% South African Rand USD -1.0% -0.2% -5.1% -7.8% Swiss Franc USD 0.4% -0.3% -7.5% -6.2% Chinese Yuan USD -0.3% -0.4% -1.4% -0.8% Commodities & Alternatives Commodities USD -5.3% -6.5% -14.8% -13.2% Agricultural Commodities USD 0.3% -0.5% -6.4% -7.2% Oil USD -5.3% -13.7% -33.3% -33.1% Gold USD -2.8% -0.5% -3.2% -6.2% Hedge funds USD 0.4% 0.4% 0.2% 1.0% Source: Bloomberg Page 3 of 5
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