08.11.13 Friday Morning

This week will likely be remembered for a series of surprising events which could be a catalyst for a much expected period of volatility.

Investors started the week bullishly on the back of positive results from HSBC but by Friday the bears had taken over, this despite better-than-expected Non-farm Payrolls data from across the pond, which was received as being a negative sign adding to other indications that tapering is now back to the forefront.

Traders decided to begin the week in a buying mood as the markets were boosted by results from HSBC which showed the bank posted a rise in quarterly profits.  Another reason for pushing multi-year highs on indices was provided by China, which showed the service sector activity reached a 14-month high.

That being said, optimism was reversed on Tuesday morning and financials stocks led the reversal as a result of RSA warning that adverse weather in Europe and Canada would detriment full year-returns.  Adding to this, traders decided that new regulatory reforms for banks would also impede the bottom line and thus decided to remove banking shares from their portfolios.  However, rumours of a rate cut by the ECB on Thursday led to another reversal, and equities were quickly befriended by traders once again.

The optimism failed to spill over on Wednesday, although airline stocks attracted some support following easyJet posting a 5.4% rise in passenger numbers in October.  The markets were also gifted with better-than-expected services data from Spain as well as manufacturing data from the UK.  There has to be one outlier and this was Italy which barely reported an expansion for their service sector.

On Thursday, traders were taken back by a series of data which injected a bout of volatility into the markets.  Firstly, officials from the European Central Bank surprised the markets by lowering the interest rate from 0.5% to 0.25% owing to a falling inflation rate.  This led to a sharp selloff in the euro and a temporary surge in equities.  However, shortly after, a substantially better-than-expected growth figure from the US also shocked investors.  Consequently, this led to a sharp sell-off in equities owing to investors fretting over the possibility that tapering would now happen at the earliest opportunity.

On Friday, investors received a US pays roll figure which came in substantially better-than-expected.  Data showed that there was 204,000 new employments which was the strongest reading since May 2013.  The equity markets however interpreted this pessimistically and sold-off on the back of fears that tapering is now more likely then it may have been a few days before.  Gold was dumped as inflationary fears no longer hung over the markets and the dollar recovered further.

Equity of the week should probably go to newly-listed Twitter.  The micro-blogging site jumped more than 73% compared to their IPO price and valued the company at around $31bn.  However, talks have already begun to plaque the markets of a Facebook-type-situation where an initial surge, leads to a later slump.  Only time will tell. 

Next week, investors will have a series of data to push key levels currently being tested in many markets.  Inflation and unemployment figures from the UK will prove interesting and perhaps the most hotly-anticipated speech of next week will come from US Fed Chairman, Ben Bernanke.  Investors will once again be meticulously analysing any buzz-words to get a glimpse as to whether Bernanke will let slip regarding whether to taper, or not, at the next FOMC meeting.