Sentiment grows, but is fragile as volatility persists

February 29, 2016

While last week was fairly mixed for equity markets, they ended the week up, and investor sentiment remained more robust than it has been so far this year. However, the demand for safe haven assets such as UK Gilts is still strong, with yields pushing towards new lows. With the financial markets is such a delicate balance, significant news flow in either direction will have a significant impact. Increased volatility is likely to be present for some time.

Economic data screen investor sentiment

US GDP figures for the last quarter 2015 were unexpectedly revised up on Friday bringing a further boost to shares. Many economists expected the figure to be revised down. The revision was predominately down to a larger than expected inventory build by US companies. However, focus is now turning to the US presidential election, with Donald Trump becoming increasingly likely to win the Republican nomination. With uncertainty looming as to the November election, again investor sentiment is driving markets.

Domestically, it is widely expected that the chancellor, George Osborne, will announce further cuts in his budget on 16th March. After the chancellor was given a boost in the last budget, with GDP figures revised up, he is unlikely to receive such a favourable climate this time around. Furthermore, tax revenues have continued to be weaker than anticipated, adding pressure on spending cuts to meet the self-imposed deficit targets. ONS figures released on Thursday indicated that UK GDP is being driven almost entirely by consumer spending. Exports have remained a drag on growth, and this may be something that the chancellor will once again try to address. However, the current weakening pound may go some way to addressing this imbalance.


Index Open Close Change % Change
FTSE 100 5950 6096 146 2.45%
S&P 500 1917 1948 31 1.62%
Dax 9388 9513 125 1.33%
Cac 40 4223 4314 91 2.15%
Nikkei 225 15967 16188 221 1.38%
UK 10 Year Gilt Yield 1.439 1.376 -0.063 -4.38%

The US non-farm payrolls and unemployment rate will be announced on Friday giving a good indication of whether the market turmoil has affected employer confidence. Economists estimate that the report will show US employers took on close to 200,000 workers during February.

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