In this week's IDB, 'As Einstein's gravitational waves are proven, investors are being pulled in different directions', Sanjay Joshi, Head of Fixed Income, presents an overview on fixed income markets following the turbulent start to the year, with a focus on financials.
- Markets remained under pressure last week and safe haven assets continued to rally. Government bonds, gold and Yen all made strong gains, translating into Japanese equity weakness, ending the week down 11% on concerns a stronger currency would reduce corporate profitability and derail government efforts to support growth and achieve inflation targets.
- Banks, particularly in Europe, remained volatile with investors mulling risks to profits and balance sheets from a growth slow down, negative interest rates and oil related losses.
- Last week, markets closely watched Janet Yellen’s testimony to Congress for guidance on Fed policy, but the Governor maintained her expectation that interest rates would rise gradually, while acknowledging that financial conditions tightened quicker than expected. Yellen was keen to reassure that all policy tools remained on the table including negative interest rates. In Europe, Sweden's Riksbank cut interest rates further into negative territory.
- US Retail sales data provided a better end to the week rising 0.2% for January versus an expectation of 0.1%. Whilst Q4 15 Euro Area GDP growth was as expected, expanding 1.5% YoY.
- Data releases this week, including US industrial production, US and UK inflation and the January FOMC meeting minutes, may be overshadowed by market sentiment.
Please click here to view the presentation.