The positive market momentum in place since February 11th continued for a fourth consecutive week as risk assets again posted encouraging gains on the back of positive economic data and central bank support. It was in the areas most punished throughout the correction earlier in the year that led the way this week including emerging markets, commodities, high yield bonds, and cyclical stocks. This week’s rally in the S&P 500 put the index just above its 200 day moving average for the first time since December 30th, 2015 and back to nearly break-even on the year.
The primary market impact event on the week was the highly anticipated ECB policy announcement which delivered interest rate cuts, cheap loans to banks, and a €20b expansion (to €80b/month) to their QE asset purchase program. Of note were the decisions to expand eligible QE assets to include corporate bonds and new lending incentives attached to four year term loans offered to the banking sector, which effectively pay banks to extend loans into the economy. Market participants are now looking forward to upcoming meetings of the BOJ (3/15), Fed (3/16), and a 3/20 meeting of OPEC/non-OPEC oil producers.
Energy commodities rallied sharply on the week with oil and natural gas up 7.18% and 15.44% respectively. An IEA report on Friday highlighted: non-U.S. production disruptions in Iraq, Nigeria, and UAE, expectations for non-OPEC production to decline 750,000 barrels per day in 2016, and slower than anticipated Iranian oil production increases as well as increased demand projections in Asia.
The economic calendar was not very busy last week but the rally in commodity prices (inflation) pushed interest rates higher across the curve while the U.S. dollar weakened slightly, particularly versus the Euro. The 10 year U.S. Treasury has moved back above its 50 day moving average and near the 2% level which it hasn’t seen since late January.
