Global equity markets continue to reach all-time highs even as the level of market activity is beginning to slow down a little as the Summer holidays approach.
The U.S. dollar staged its biggest rally since the month of February as the Japanese Yen breached the 100 threshold against the U.S. dollar as the Japanese Central Bank continues with its monetary easing program.
The ECB’s (European Central Bank) interest rate action last week also added fuel to the U.S. dollar’s rally.
Equity markets in some emerging markets suffered from the weaker Yen, as Japanese exports are increasing at the expense of other export-oriented countries.
Yields on U.S. Treasury bonds continue to rise (price and yield move inversely) as employment figures out of the U.S. have encouraged speculation around a gradual tapering off of the Federal Reserve’s QE (quantitative easing) program.
The yield on the benchmark 10 year U.S. Treasury bond hit a recent high of 1.9%.
Investors continue to take on more risk, moving out of the relative safety of U.S. Treasury bonds and into equities and corporate bonds instead.
Yields on sub-investment grade bonds are now below the 5% threshold, the lowest level since records were first kept roughly 30 years ago, according to the Barclays (formerly Lehman Brothers) U.S. High Yield Credit Index.
To put it in context, 5% is what the benchmark 10 year U.S. Treasury bond was yielding roughly 6 years ago.
As global interest rates have compressed, the funding environment for issuers of debt has become that much more attractive.
On the flip side, the outlook for investors has become that much more risky as any significant sell-off in U.S. Treasury bonds (and commensurate uptick in U.S. Treasury bond yields) can lead to substantial declines in the valuation of corporate bond or Sukuk holdings.
On the week, the S&P 500 stock index closed +1.2% higher while the FTSE 100 stock index closed +2.5% higher on the week.
In Latin America, Mexico closed -2% lower while Brazil closed -0.7% lower on the week.
Borsa Istanbul closed +0.5% higher while Egypt closed +3.5% higher.
In the Maghreb, Tunisia closed -2.1% lower while Morocco closed flat on the week.
In sub-Saharan Africa, Nigeria rallied to close +2.6% higher on the week while Kenya was up +1.4%.
In the GCC, Kuwait closed +0.3% higher with Saudi Arabia up +0.4%, while Qatar was up +1.1% higher and the UAE was up +2.6% higher.
Across Asia, the Japanese Nikkei was up +5.9% lower on the week while the Chinese Hang Seng index was up +2.3% higher.
Malaysia closed the week +4.6% higher, helped by the closure brought by the elections, while Indonesian equities closed the week +2.2% higher.
With Memorial Day in the U.S. and Summer holidays across the rest of the globe fast approaching, primary new issuance in the fixed income space has slowed down palpably.
There was a sovereign new bond issue by Brazil while the Commercial Bank of Dubai is on a road-show to explore a new bond issuance.
Abu Dhabi National Energy Company (Taqa) is also exploring the market with a road-show for an upcoming bond issuance.
In New York, there were some interesting thoughts around the current and future direction of the markets at the annual Ira Sohn charity investment conference.
Market Color will take a brief hiatus due to the annual Board of Governors meeting of the IsDB.
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Yazar Abdullah Karataş