The roller coaster start to 2016 continues for investors

February 1, 2016

shutterstock_243928624After a rollercoaster ride through January, a strong finish last week recovered some of the ground lost since the start of the year. The FTSE 100 finished the month down 2.5%, after falling as much as 9.6%.

The recovery in equities started initially as a bounce from what was seen by many as an overreaction to investor concerns about risk. With several equity markets having fallen over 20% from their peak, bargain hunters saw an opportunity to buy at attractive levels. Positive sentiment was enhanced late last week by the Bank of Japan announcing that it was introducing negative interest rates. Negative rates set by the central bank is another tool used to encourage banks to lend rather than hold cash on deposit, therefore spurring investment and spending in the economy. Such rates are already in place in Europe. However, the Bank of Japan Governor has up till recently spoken out against such a policy, so the announcement came as a significant positive surprise for investors. A commitment made by the central bank to continue with additional monetary stimulus until inflation and real earning growth returns has been seen as significant support for the Japanese economy and the wider Asian region.

The US Federal Reserve also met last week for their first meeting following the 0.25% interest rate rise in December. It was anticipated that no further increase would happen this month. However, the meeting was carefully monitored for hints as to when further increases would occur. After a turbulent January and greater economic concerns, it appears that the future increases may become less frequent than previously anticipated. The Federal Reserve was quoted as saying it was “closely monitoring” global economic conditions.

Index Open Close Change % Change
FTSE 100 5900 6083 183 3.10%
S&P 500 1906 1940 34 1.78%
Dax 9764 9798 34 0.35%
Cac 40 4336 4417 81 1.87%
Nikkei 225 16958 17518 560 3.30%
UK 10 Year Gilt Yield 1.684 1.568 -0.116 -6.89%

This week will see the Bank of England interest rate decision announced on Thursday with the US non-farm payrolls and US unemployment rate announced on Friday.

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