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...

ASIA

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.

RUSSIA

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.

UNITED STATES

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

 

U.S.

Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Sun
Jan 31

 

 

 

 

Mon
Feb 1

Iowa presidential caucus, personal spending, manufacturing growth

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

UK: manufacturing growth

 

Tue
Feb 2

Auto sales

Brazil: industrial production

Eurozone, Germany: unemployment

Japan: monetary base

Wed
Feb 3

US employment, services growth

 

Eurozone: services growth
UK: services growth

 

Thu
Feb 4

Jobless claims, job cuts announcements, productivity and labor costs

 

UK: interest rate decision

 

Fri
Feb 5

Monthly unemployment rate, payrolls, trade balance, consumer credit

 

Germany: factory orders

 

Sat
Feb 6

 

 

 

 

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


Definitions:

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.


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Previous Editions

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Poll

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










Poll

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

None
(18%)
One
(34%)
Two
(42%)
Three
(4%)
Four
(2%)
More than four
(0%)



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
(51%)
Yes: Demographics and urban labor shortage will constrain demand
(20%)
No: New monetary and fiscal stimulus will restore rapid growth
(14%)
No: Recovery in the US, Europe and Japan will more than make up for slowing domestic demand
(15%)