US stocks reclaimed the top spot in last week’s performance race for the major assets classes, based on a set of proxy ETFs. The Vanguard Total Stock Market ETF (VTI) gained 1.7% for the five trading days through Oct. 23, the fourth straight weekly rise--the longest winning streak in a year. Otherwise, the week just passed was mixed for the major asset classes, with broadly defined commodities--iPath Bloomberg Commodity (DJP)--leading the losers with a 2.7% loss--the biggest weekly slide since August.
Most of last week’s gains were in stocks, although high-yield bonds inched higher too. The prospects of more (or ongoing) monetary stimulus was a factor in bidding risky asset prices up. The crowd decided that the Federal Reserve would continue to delay an interest rate hike, perhaps into 2016. Meanwhile, the Bank of China on Friday announced a rate cut in an effort to juice its economy after a run of economic reports that reflect slowing growth.
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In addition, the European Central Bank (ECB) last week hinted that it would roll out additional stimulus efforts next month to bolster a softer trend across the Eurozone. “The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties regarding developments in emerging market economies,” ECB President Mario Draghi warned last week.
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The latest weekly rally in US stocks is once again providing a rosy glow to the trailing 1-year return. VTI is ahead by 7.9% for the year through Oct. 23--second only to US real estate investment trusts-Vanguard REIT (VNQ), which is up 8.9% in annual terms through last Friday.
“The main factor behind the global ebullience [for equities],” notes Andrew Adams of Raymond James, “appears to be a collective confidence that the low-interest rate environment is going to continue for the foreseeable future.”
But that’s also a clue for thinking that economic growth will be weaker generally. The risk-on trade for equities, in other words, may be less compelling than last week’s pop in stocks suggests.
The markets will continue to walk a fine line. Slow growth will hang over the world economy for the foreseeable future. But that means that the odds will stay low for squeezing monetary policy, in the US or anywhere else. Deciding if this amounts to a net plus for risky assets will remain a tough needle to thread. Perhaps, then, it’s reasonable to assume that animal spirits will wax and wane for the near term with muted price trends overall. The economic outlook probably isn’t as dire as the pessimists anticipate, but breaking free of moderate (and in some cases tepid) growth isn’t going to be easy.
As a result, the latest rally in stocks looks less like the start of a new sustainable uptrend vs. a bounce back from the a wave of pessimism that went a bit too far. Until the macro backdrop offers more convincing support, the markets may be destined to suffer a fair amount of churning as the crowd struggles to find a narrative in the noise.
Shares on Hong Kong’s stock exchange have risen sharply today, consolidating gains made last week after a prolonged slump.
The benchmark Hang Seng index jumped two point four per cent at the opening and continued rising through morning trading.
Analysts say the Nasdaq’s six point four per cent rise on Friday last week and improved U-S data has bolstered sentiment in Hong Kong.
Hong Kong stocks moved higher on Monday with the Hang Seng index gaining three point seven per cent in morning trading to hit fifteen thousand eight hundred points.
Investors regained enthusiasm as interest rates worries eased on better U-S data and the Nasdaq’s climb Friday of six point four per cent shored up confidence in technology stocks.
SUPER CAPTION: (English):
“The market’s rallied very strongly this morning. It’s up about three point seven per cent so far, we’re not yet to lunchtime. That’s a very strong rally and I think it’s very largely due to data that we were seeing coming out of the U-S in the latter part of last week – better than expected unemployment numbers, better than expected wage growth numbers, better than expected data on inflationary pressures in the U-S, and that of course is leading people to think that perhaps we’re going to see an end to tightening by the (U-S) Federal Reserve much sooner than people would have expected.”
SUPERCAPTION: Peter Churchouse, Managing Director, Morgan Stanley Dean Witter Asia
The government says Hong Kong’s first quarter GDP (gross domestic product) growth this year was fourteen point seven per cent.
“The near term catalyst for the market is U-S interest rates but the Hong Kong economy is actually performing better than expected, the first numbers as we know were very very strong indeed. We’re starting to see good pickup in retail spending, consumer sentiment
is picking up a little bit, the banks are in pretty good shape. In China in particular we’re seeing extremely good numbers coming out on the export side, that’s always good news for Hong Kong.”
SUPER CAPTION: Peter Churchouse, Managing Director, Morgan Stanley Dean Witter Asia
The Hang Seng index has risen more than two thousand points in the week since last Monday and analysts say that it may meet resistance at the sixteen thousand level.
The market will be closed on Tuesday for the Dragon Boat public holiday and this may lead to profit-taking in afternoon trading.
Among gainers this morning was China Telecom, surging five point six per cent to sixty five point five Hong Kong dollars a share.
HSBC holdings, owner of the UK’s biggest bank, was up three point four five per cent at ninety Hong Kong dollars a share.
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