A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

February 1, 2016

"Labor market conditions improved... even as economic growth slowed"

— FOMC statement on keeping rates steady in the face of a slowing economy

The week in review...


Japan: Not so negative The Bank of Japan (BoJ) surprised markets on Friday by slashing its rate on new reserve deposits to the BoJ to minus 0.1 percent — charging banks for the privilege of leaving money with the central bank. According to BoJ governor Haruhiko Kuroda, the move was needed to compensate for falling oil prices and China's slowdown, rather than any economic weakness at home. Currency markets reacted immediately; the Japanese yen fell 2.26% intra–day on the announcement, trading as low as 121.42 to the US dollar.

China: Cash for the New Year The central bank injected 690 bn yuan ($105 bn) into the banking system this past week through open market operations — the largest such addition on record — in part to accommodate increased demand for cash during the February Lunar New Year holiday. There are other demands for cash in the system as well, including the need to keep funds available for commercial lending to support economic growth, and to compensate for the buying of yuan as part of the bank's program to support the exchange rate in global markets.

Taiwan: Feeling the chill For the second quarter in a row, Taiwan's economy contracted on a year–on–year basis, falling –0.28% in the three months through December, after a 3Q2015 year–on–year drop of –0.63%. Local manufacturers were hit by two aspects of China's slowdown: decreased demand and tougher competition. But not all news was negative: domestic consumption grew 1.64% in Q4, compared with 0.5% growth in 3Q and 2.81%, partly due to falling oil prices.


Ruble, ruble, oil and trouble: After hitting a post–Soviet low of 85.95 to the US dollar, the ruble traded at roughly 76 to the dollar on Jan 29, as the central bank kept its 11 percent deposit rate steady at Friday's meeting. The currency has been a victim of the oil rout, falling nearly 60 percent since its June 2014 high of 33.7 to the US dollar. President Vladimir Putin hinted that Russia and Saudi Arabia might meet outside the OPEC framework to discuss restricting oil production.


The Fed: Doves and bears Last week's FOMC meeting contained no surprise decisions, but its policy statement was more cautious than in December about the global economy and its potential effect on the path of rate hikes for the rest of the year. Markets treated the statement in the moment as bearish as well as dovish — ten–year Treasury yields moved down from 2.0500% to 1.9925%, and the Dow Jones Industrial Average dropped over 2.1 percent.

First look: 4Q growth slowed GDP for the quarter, based on preliminary figures, came In at a 0.7 percent annualized rate, low but within expectations. A key detractor: inventory drawdowns, interpreted as a sign of growing industrial cautiousness, especially in the face of a rising US dollar. One upside note for consumption: As a share of GDP, employee compensation reached a cycle high of 54.3%, and wage/salary share reached 44.05%.

Signs of the times:

Housing Market Surges in 2015 but Faces Bumpy Road Ahead — US News and World Report

In Portugal, Voters Pick Center–Right President — The New York Times

Chinese banks fear credit risks in industries with overcapacity: report — Xinhua

Japan's 'Quiet Property Bubble' Faces End as Transactions Slide — Bloomberg

...The week ahead:

GLOBAL ECONOMIC CALENDAR: January 24 – 30, 2016



Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Jan 31





Feb 1

Iowa presidential caucus, personal spending, manufacturing growth

Brazil: trade balance
Argentina: government proposal for settling 2001 defaulted debt

UK: manufacturing growth


Feb 2

Auto sales

Brazil: industrial production

Eurozone, Germany: unemployment

Japan: monetary base

Feb 3

US employment, services growth


Eurozone: services growth
UK: services growth


Feb 4

Jobless claims, job cuts announcements, productivity and labor costs


UK: interest rate decision


Feb 5

Monthly unemployment rate, payrolls, trade balance, consumer credit


Germany: factory orders


Feb 6





Sources: Bloomberg, Reuters, Wall Street Journal, Financial Times, New York Times, Xinhua, China Daily


The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.

The Federal Open Market Committee (FOMC) is the policymaking body of the Federal Reserve System (Fed), responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The Dow Jones Industrial Average (DJIA) is an unmanaged index composed of 30 blue–chip stocks, each with annual sales exceeding $7 billion. The DJIA is price–weighted, reflects large–cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes such as the S&P 500.

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization of 12 oil–exporting developing nations that coordinates and unifies the petroleum policies of its member countries.

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.

Gross Domestic Product ("GDP") is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

Important Information

All investments involve risk, including possible loss of principal.

Yields and dividends represent past performance and there is no guarantee they will continue to be paid.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed–income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward–looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the "$" (dollar sign) represents U.S. Dollars.

This material is only for distribution in those countries and to those recipients listed.

All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland.

Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444.

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People's Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC. The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC's commercial bank in accordance with the regulation of China Banking Regulatory Commission. Investors should read the offering document prior to any subscription. Please seek advice from PRC's commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only. Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2–8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker–Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia:

This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) ("Legg Mason"). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client's professional advisers.


Previous Editions

Click on a date to view that week's edition of weekly snapshot.


How many times will the US Federal Reserve raise its benchmark interest rate in 2016?


How many times will the US Federal Reserve raise its benchmark interest rate in 2016?

More than four

Previous month Poll

Will China's official growth rate fall to 6 percent by the end of 2015?

Yes: Economic reform measures will take their toll on growth
Yes: Demographics and urban labor shortage will constrain demand
No: New monetary and fiscal stimulus will restore rapid growth
No: Recovery in the US, Europe and Japan will more than make up for slowing domestic demand