The week that was

Another week and another 4% round trip for the US equity market only to end up more or less where it started. The week started on a positive note with Google announcing more blow-out earnings but then Meta missed expectations and reported a comparatively dismal outlook and promptly lost a quarter of its value, the biggest one day fall in value for a company, ever. Then Amazon reported a huge increase in profits and leapt by 14% or $191bn, the biggest rise in value of a US listed company, ever (breaking the record that Apple set of all 10 days ago.) Finally, the US jobs report for January also broke a few records on Friday, not least for the extent to which it confounded expectations. The data is as noisy as it was in the late 2020/early 2021 reopening but this time the noise is travelling in one direction with upwards revisions to both the November and December reports also reported. That meant interest rate expectations spiked and US markets were once more on the back foot into the close but still ended up for the day and up around 1.5% for the week. Most European markets were down 1-2% but that was as much to do with closing earlier as anything else while the UK markets was up again for the week. Chinese markets were closed for most of the week for Chinese New Year but opened up strongly in Hong Kong on Friday and other emerging and Asian markets were also relatively calm.

Australia was also a relative oasis of calm last week with no notable earnings announcements, supportive news from China for the miners and Consumer discretionary stocks getting a fillip from the the predicted easing of COIVID cases and hospitalisations. In direct contrast to the polarisation and cross-sectional volatility of the US market, almost all stocks (more than 80%) were in positive territory and the vast majority were only up by a few percent.

Overseas bond markets on the other hand were more exciting with European government bond yields up by 0.2-0.4%, which is significant when one considers that this takes German Bunds back into positive territory in a few years (at least in nominal terms, before taking into account inflation). Credit spreads also continued to ease and the combination of rising interest rates and higher spreads has already resulted in low single digit losses for overseas bond funds so far this year, and last week saw a slight acceleration with 1% losses for diversified and high yield corporate bond funds. Local government bonds and the high grade floating rate credit securities that are typical of the local market were down again very slightly last week, making them down 0.5% to 1% for the year. No real signs of credit stress yet but we are apparently not the only ones to be watching credit markets quite closely.

Meanwhile commodity markets continued to signal inflationary pressures with just about every markets across the energy, agricultural and metals complexes up by another 2-5% or so (including Gold which was up 1%).