The Weekly Stock Market Report (23-29 May 2015) - J.P. Morgan Asset Management

The Weekly Stock Market Report (23-29 May 2015)

Contributor JPMAM UK
US: Overseas woes rattle Wall Street
  • US stock markets pulled back from record highs in the week to 29 May. The Dow Jones lost 1.2%, while the S&P 500 was down 0.9%. Prospects of higher interest rates put upward pressure on the US dollar, which gained 0.7% over the week against a basket of its peers.
  • In a week shortened by Monday's public holiday, overseas issues were in focus, with heavy losses on the Chinese market and continued worries over a potential Greek exit from the euro weighing on sentiment. At home, economic news did little to change expectations that the Federal Reserve will raise interest rates later this year.
  • The US Commerce Department revised its estimate of first-quarter GDP growth from 0.2% to -0.7%. However, the revision was widely expected given indications from other data that the US economy contracted in the quarter.
  • Second-quarter data so far has been mixed, but has broadly suggested that the weakness in the January-March period will prove to have been temporary. Last week's releases included encouraging signs on business investment, consumer confidence and the housing market.
  • Headline durable goods orders fell 0.5% in April, but orders for non-military capital goods excluding aircraft - seen as a proxy for corporate capital expenditure - rose 1% following an upwardly revised 1.5% gain in March.
  • Consumer confidence picked up from a four-month low this month as Americans became more positive about the economy and employment conditions. The Conference Board's index of consumer sentiment rose to 95.4 from 94.3 in April. The report, which is viewed as a leading indicator for consumer spending, showed a rise in planned purchases of cars, homes and appliances.
  • Sales of new homes rose 6.8% in April to an annualised pace of 517,000, helped by an improving labour market and a limited supply of existing homes. The S&P/Case-Shiller index of property values in 20 US cities increased 5% in March vs. the same month last year.
  • On the equity market, merger & acquisition activity remains elevated. The technology-focused NASDAQ held up better than its broad peers last week, slipping 0.4%, as the surge in deals in the sector provided support. On Thursday, the biggest ever tech deal was announced, with Avago Technologies agreeing to acquire fellow chipmaker Broadcom for USD 37 billion.
EUROPE: Greece worries linger
  • European equities delivered negative returns in the week to 29 May, with the MSCI Europe Index down 1.6%, amid ongoing concerns over the Greek bailout crisis. Germany's DAX fell 3.4%, while Spain's IBEX 35 and France's CAC 40 were down 2.9% and 2.6% respectively. Italy's FTSE MIB slipped 1.2%, while the UK's FTSE 100 lost 0.7%.
  • Sentiment was dominated by uncertainty over the ability of Greece to secure further short-term funding from its creditors, in order to help it avoid defaulting on its upcoming payment to the International Monetary Fund (IMF).
  • There were conflicting reports in the week on the level of progress made between Athens and its creditors. Greek prime minister Alexis Tsipras claimed the Greek government was close to reaching a deal with its creditors, but comments from the European Commission, IMF and some of the creditor countries suggested that no real progress had been made between the two sides.
  • However, the IMF announced that it would allow all June repayments - totalling USB 1.6 billion - to be delayed until the end of the month, giving Greece more time to negotiate a rescue deal with its creditors.
  • In Spain, the market reacted to some surprising results from the regional elections, where no single party gained a majority and there was a strong showing from anti-austerity parties. For years, Spanish politics has been dominated by the Popular Party (PP) and the Socialists (PSOE), but the political landscape is beginning to change, with a four-party system likely after this year's general election.
  • Data released in the week confirmed that Spain's economy grew 0.9% quarter on quarter (q/q) in the first quarter, compared to 0.7% q/q in the fourth quarter, supported by buoyant domestic demand.
  • Meanwhile, the Italian economy grew 1.2% q/q in the first quarter, following 14 quarters of contraction.
  • In the UK, first-quarter GDP data disappointed, with the economy expanding by just 0.3% q/q - the slowest pace since the fourth quarter of 2012. The weaker-than-expected data reinforced the view that the first interest rate rise from the Bank of England was not likely to take place until the first half of 2016.
PACIFIC: Japan gains on dollar weakness
  • The MSCI Pacific Index rose 1.2% in the week to 29 May.
  • Japan's TOPIX gained 1.6% as yen weakness boosted the outlook for the market's exporters. The yen hit its lowest level against the dollar since 2002, even without any indication of further easing plans from the Bank of Japan.
  • Australia's All Ordinaries also benefited from the strength of the US dollar, returning 1.9%. However, poor capital expenditure data painted a worrying picture of the health of the country's mining sector.
  • Hong Kong's Hang Seng slid 2.0%, hurt by a sell-off in the mainland market. Chinese stocks fell heavily on tighter lending restrictions at brokerages and worries over intensifying regulatory pressure.
  • Singapore's Straits Times was down 1.7%. Singapore's economy expanded faster than previously estimated in the first quarter, with GDP growth coming in at 2.6% year on year, up from an initial reading of 2.1%. However, the government revised down its medium-term GDP growth forecast to a range of 2-4% between now and 2020, from a previous forecast of 3-5%.
EMERGING MARKETS: India outpaces China
  • The MSCI Emerging Markets Index fell 2.0% in the week ending 29 May, underperforming the MSCI World.
  • The MSCI China was down 2.2% in the week, as concerns over tightening lending restrictions by brokerages and increasing disciplinary action from regulators resulted in heavy selling. Meanwhile, the People's Bank of China warned that the Chinese economy faces increased downward pressure this year amid rising domestic debt levels.
  • Elsewhere in emerging Asia, India's Sensex slipped 0.5% on the back of concerns over corporate earnings. However, data confirmed that India's economy grew a stronger-than-expected 7.5% in the first quarter, meaning the country has outpaced China's growth for two out of the last three quarters.
  • South Korea's Kospi fell 1.5%. Industrial production data for April came in weaker than expected. Business sentiment in two local surveys remained mixed in May, as the outlook for overall business conditions improved, while the assessment of current conditions deteriorated. On the positive side, domestic demand improved in April, with consumer goods sales up firmly. Taiwan's Taiex rose 0.6%.
  • In Latin America, Mexico's IPC slipped 0.4%. Retail sales for the first quarter rose 5.5% from a year earlier. Brazil's Bovespa was down 3.0%, following reports that the Brazilian economy contracted by 0.2% in the first quarter.
  • In emerging Europe, the Czech PX-50 and Polish WIG were down 0.8% and 2.3% respectively. The Czech economy grew 3.1% quarter on quarter (q/q), marking the eighth consecutive quarterly expansion, while Poland's economy expanded by 1.1% q/q, driven by a pickup in private consumption on the back of an improving labour market. Hungary's BUX was up 0.9%.
  • Russia's RTS dropped 7.8%, as weaker-than-expected manufacturing and retail data reinforced concerns that the country's economy is headed for a sharp recession.

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