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  • Weekly macroeconomic and market update 24 March 2015

Weekly macroeconomic and market update

Read on for an overview of the major market and macroeconomic events for the week ending 13 March. This week’s roundup includes more drama from Greece and the Eurozone, a change in language from the FOMC, and what we can expect between now and Friday.

“Patient” language dropped from Federal Reserve guidance

As we expected, the Federal Open Market Committee dropped the word “patient” from its forward guidance last week – indicating a change in its stance on interest rates. However, in our view of greater significance was its lowering of the expected path of rate tightening (“lowering the dots”). The FOMC reduced its expectations for year-end interest rates by 50bps, while also reducing its expectation for natural unemployment levels – suggesting there may be a greater possibility of lower interest rates for longer periods of time without causing inflation.

The OECD’s growth forecast

The Organisation for Economic Co-operation and Development upgraded its growth forecasts for the Eurozone and global economies. The latest expectations for Eurozone growth are 1.4% this year and 2% in 2016, while global growth is forecast at 4% this year and 4.3% next year. However, it also warned that global growth has become too reliant on loose monetary policy and that structural reforms are needed.

Greece and the Eurozone

Once again, Greece narrowly avoided defaulting on its debts. On Thursday the Greeks said that they will present a full list of specific reforms, which has allayed some market fears for what is becoming known as a possible “Grexit”. On Friday, Greece appeared to have struck a deal with Germany to release short-term bailout funds. Check next week’s market and macroeconomic review for more updates.

Last week’s other events

  • Here in the UK, the Office for Budget Responsibility (OBR) revised up its forecast for UK growth, to 2.5% in 2015 and 2.3% in 2016.

The markets

Last week saw the FTSE reach an all-time high, a rebound in the price of oil, and mixed results for bond yields.

Graph 25-03-2015

  • Equities – The headline news was the FTSE breaking the 7000 mark to reach an all-time high. The S&P 500 also rose +2.7%.
  • Bonds – There were mixed results for bond yields – US 10 year bonds closed the week at 1.93% and German bunds reached a record low at 0.18%. UK bonds were at 1.5%, and Greek 2 year bonds also reached a new high of 25% on Thursday.
  • Commodities – West Texas Intermediate showed a +2.2% rise in the price of oil.
  • Currencies – The DXY dollar index weakened 1.4% on Friday, which could be good for expectations of exports.

The week ahead

We begin the week with existing and new home sales figures from the US, alongside consumer confidence and manufacturing PMIs from Europe. Here in the UK, we also have CPI, RPI and PPI figures on Tuesday.

After a relatively quiet midweek period, on Friday we have employment statistics, retail sales and CPI figures from Japan – where deflation is back on the horizon as a result of weak energy prices.

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