The Weekly Stock Market Report (18-24 April 2015) - J.P. Morgan Asset Management

The Weekly Stock Market Report (18-24 April 2015)

Contributor JPMAM UK
US: Technology stocks rally
  • US stocks rose in the week to 24 April, boosted by encouraging corporate earnings results. The S&P 500 was up 1.8%, the Dow Jones Industrial Average rose 1.4% and the technology-biased Nasdaq returned 3.2%.
  • Sentiment was boosted by better-than-expected corporate earnings results released in the week. The first-quarter corporate earnings season is well underway, with 201 of the S&P 500 companies having reported so far. Results have been better than expected, with 76% of companies beating earnings-per-share forecasts by an average of 6.6%. Earnings reports from technology companies, including Google, Amazon and Microsoft, were particularly strong in the week, leading the Nasdaq to a record high.
  • Energy stocks were also among the week's top performers, as oil prices reached their highest levels since December, boosted by signs of curtailed US output, as well as indications of firming demand and talks of coordination among the major international producers.
  • Markets shrugged off lacklustre economic data released in the week. Manufacturing activity weakened, with the Markit manufacturing purchasing managers' index dropping from 55.7 in March to 54.2 in the flash release for April. This was a larger decline than expected, but the index remained above the 50 level that separates contraction from expansion. The output and new orders components both dropped notably, however, while the employment index narrowly edged down.
  • Meanwhile, initial jobless claims edged higher for a third successive week, increasing 1,000 to 295,000 in the week ending 18 April. However, initial jobless claims remain low overall and are consistent with a healthy labour market. New home sales declined by a larger-than-anticipated 11.4% in March.
  • Attention is now focused on the release of the first-quarter GDP figure, due on Wednesday, and for any further indication of when the Federal Reserve will raise interest rates.
EUROPE: Earnings boost to sentiment
  • European stock markets made broad gains in the week ended 24 April as some encouraging corporate earnings reports outweighed caution over Greece. The MSCI Europe Index was up 1.1%.
  • Among the major markets, Italy's FTSE MIB gained 1.7%, Spain's IBEX 35 was up 1.3%, the UK's FTSE 100 and the French CAC 40 both rose 1.1%, and Germany's DAX was 1.0% higher, while the Swiss SPI rose 0.7%.
  • Markets were boosted by gains in the autos, basic resources, technology, banks and telecoms sectors. Basic resource stocks were boosted by higher iron ore prices on the back of BHP's decision to cut capacity, while technology companies and car makers were boosted by strong profit announcements.
  • According to Thomson Reuters StarMine, 61% of European companies listed on the STOXX 600 index have beaten or met expectations with their first-quarter earnings announcements. This stronger corporate backdrop has helped alleviate concerns over economic growth and uncertainty over a potential Greek debt default.
  • Economic data releases were mixed last week, with a stronger reading for Germany's IFO business confidence index boosting sentiment, while a drop in April's eurozone composite purchasing managers' index (PMI) caused some concern that the regional recovery may not be as strong as previously hoped.
  • However, the PMI, which measures activity in the manufacturing and services sectors, did contain some positive news, with industrial activity continuing to accelerate in the peripheral eurozone countries and German activity still strong. In contrast, a weak reading for France highlighted the unevenness of the eurozone recovery.
  • Negotiations to avoid a Greek default also remained unresolved, as the Eurogroup meeting of eurozone finance ministers ended without any agreement to grant Greece further bailout funds. The Greek government appears to have enough money to meet its obligations until the end of May. The implications for markets of a Greek default are highly uncertain, but investors hope that the fallout would be contained by the measures put in place by the European Union and European Central Bank (ECB) in recent years.
  • Investors also hope that the ECB's sovereign bond purchase programme will support the eurozone recovery and provide further protection from the crisis in Greece. ECB demand, along with safe haven buying sparked by uncertainty over Greece, had pushed core eurozone bond yields sharply lower in recent weeks, with German 10-year Bund yields falling to a record low of just 0.05% earlier in April.
  • Last week, however, 10-year Bund yields rose back to 0.16%, as weaker US data and some worries over the strength of the eurozone recovery sparked a sell-off. UK Gilt yields also rose sharply after the minutes from the Bank of England's latest Monetary Policy Committee meeting suggested UK policymakers remain sanguine on the global growth backdrop.
PACIFIC: Resource stocks boost Australia
  • The MSCI Pacific Index rose 1.6% in the week ended 24 April.
  • Japan's TOPIX gained 1.9%, supported by hopes for positive corporate earnings reports and expectations for further easing from the Bank of Japan later in the year as the outlook for Japanese growth and inflation continued to weaken.
  • The latest quarterly Tanken business sentiment survey showed weakness among Japanese manufacturers, while the flash manufacturing purchasing managers' index fell below 50—indicating contraction in activity - for the first time since May 2014.
  • Hong Kong's Hang Seng climbed 1.5% on further hopes for capital inflows from mainland investors through the Shanghai-Hong Kong Connect programme.
  • Australia's All Ordinaries rose 0.9%, boosted by resources stocks on the back of broad gains in oil, iron ore and gold prices. However, Singapore's Straits Times fell back slightly, ending the week down 0.3%.
EMERGING MARKETS: China eases policy
  • The MSCI Emerging Markets Index was up 1.4% in the week ending 24 April.
  • Brazil's Bovespa was among the region's strongest performers, rising 4.9%, led by state-owned oil company Petrobras. The stock performed strongly after it published its long-delayed audited 2014 financial statements, confirming that it is finally emerging from one of Brazil's biggest corruption scandals.
  • Elsewhere in Latin America, Argentina's Merval rose 4.1%, while Mexico's IPC returned 1.7%.
  • The MSCI China ended the week 1.0% higher. The People's Bank of China stepped up its efforts to stimulate the Chinese economy with the announcement of a one percentage point reduction in the reserve ratio requirement for banks - the biggest reduction since November 2008. The move is designed to ease credit conditions.
  • Nevertheless, continued weak Chinese economic data led to speculation that the central bank would ease monetary policy in order to meet the 7% official annual GDP growth target. The HSBC-Markit “flash” manufacturing purchasing managers' index weakened to a one-year low of 49.2 in April from 49.6 in March, remaining below the 50 level that separates contraction from expansion and marking the lowest reading since April last year.
  • Taiwan's Taiex rose 3.6% in the week, boosted by talk of a potential stock connect scheme with Shanghai. Further boosting sentiment was a recovery in export orders for March, which rose 1.3% from a year ago, compared to a 2.7% fall in February. South Korea's Kospi returned 0.8%. According to a Bank of Korea survey, consumer sentiment bounced in April, helped by a continued rise in equity prices and a recovery in the housing market.
  • In India, however, the Sensex fell 3.5% following a weak start to the corporate earnings season. In particular, earnings results from software companies Infosys and Wipro weighed on sentiment.
  • Returns were positive across emerging Europe. Russia's RTS was up 3.9%, despite a rise in the unemployment rate to 5.6% and a larger-than-expected decline in retail sales for March. Hungary's BUX rose 5.1%, while Poland's WIG was up 1.9%.

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