The charging US dollar dominated financial markets last week and with the US Federal Reserve meeting this week, the greenback will again be the major factor for investors to contend with.
The past week was messy and volatile in financial markets as worries about the Fed’s interest rate stance and the rise in the value of the greenback waxed and waned.
The US dollar surged to its highest level since 2003 as the European Central Bank (ECB) started its quantitative easing.
The prospect of that starting has seen a rapid readjustment in markets – the US share market has gone off the boil, falling now for three weeks, and while the euro has fallen, euro sharemarkets markets have surged by 20% and more in some cases.
In fact investors have pumped record amounts of money into eurozone equity funds this year because of the ECB’s long-awaited quantitative easing programme and the sharp slide in the value of the euro.
The single currency fell 3% last week and is down 13% since the start of the year. But in terms of the stronger dollar, European shares are flat so far in 2015.
The Financial Times reported that more than $US35 billion has flowed into European equity funds so far this year, surpassing the previous record of $US32 billion set in the first quarter of last year, while $US33.6 billion has been pulled out of US equity funds over the same period.
Germany is the hot market in Europe with the Dax up more than 21% – and in contrast the US market is down 0.7% so far in 2015.
Last week, eurozone shares jumped 1.4% and hit their highest level since 2007.
US shares fell 0.9% and Australian shares lost 1.4%, but Japanese shares gained 1.5% (to their highest level since April 2000) and Chinese shares soared 4.1%, despite weak economic data for the January-February period.
Bond yields fell particularly in Europe as the ECB’s easing spending started. Commodity prices generally weakened as the $US rose (especially oil) and the Aussie dollar fell, going below 76 USc at one stage and closing at 76.37.
The euro closed under $US1.05 for the first time in 12 years on Friday at $1.0496.
The oil price fell 9% taking West Texas crude oil futures prices to a new low this year. Brent crude fell 8%.
The S&P 500 recorded its third consecutive weekly decline amid worries about the Fed and the impact of the stronger dollar on corporate profits in coming months.
The sell-off on Friday took the S&P 500’s decline for the the week to 0.9%. The index closed at 2,053.40, 3.1% down from its February high.
The Dow fell 0.6% over the week to end on 17,749.95 while the Nasdaq slid 0.4% to 4,871.75.
Our market will start with a small loss this morning if trading overnight Friday on the share futures market is any guide.
The loss could be 10 points or so, nowhere near the size of the fall on Wall Street.
