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Week in Review: Investors Losing Faith in Central Banks

For the week ended 12 February 2016

  • US January retail sales rose 0.2%, December sales revised higher
  • Fed chair Yellen: Financial conditions hurting growth, negative rates an option
  • China’s foreign exchange reserves fall to three-year low
  • Sweden lowers rates deeper into negative territory
  • Eurozone Q4 GDP rose 1.5% year over year

Global equities had another rough week, with bank stocks taking the brunt of the selling. Investors are concerned that negative interest rates and other monetary policy actions have not worked and that central bankers will have no tools left if economies slump back into recession.

The Chicago Board Options Exchange Volatility Index (VIX) rose to 27.5 from 22 last week, while the yield on the 10-year US Treasury note fell to 1.69% from 1.87%. West Texas Intermediate and global Brent crude oil prices slipped to $27.85 and $31.61, respectively, from $31.25 and $34.10.


US retail sales firm in January
US January retail sales rose a better-than-expected 0.2%, and December sales were revised up to 0.2% from the previously reported -0.1%. Core retail sales excluding automobiles, gasoline, building materials and food services jumped to 0.6% in January, up from -0.3% in December.

Fed’s Yellen surprised by oil, dollar swings
During her semiannual monetary policy testimony to Congress, US Federal Reserve Chair Janet Yellen said that the Fed was quite surprised by the movements in oil prices and the extent of the dollar’s strength. While not ruling out the potential use of negative interest rates should further accommodation become necessary, she did note that the legality of such a move would be cloudy. Yellen said it is premature to say a recession is looming, though global financial and economic developments impinge on the US economic outlook.

China’s foreign exchange reserves fell $99 billion in January
China’s total foreign exchange reserves dropped to $3.23 trillion, the lowest in three years. The country has been forced to sell down reserves in order to slow the yuan’s depreciation.

Sweden lowers policy rates deeper into negative territory
Sweden’s Riksbank lowered its key interest rate by 0.15% to -0.50%, despite deepening concerns in the financial markets that negative rates could be counterproductive. Banks have come under severe pressure as profit margins have been squeezed amid flattening yield curves.

Eurozone growth meets expectations
The eurozone economy expanded at a 1.5% annualized rate in the fourth quarter of 2015, meeting market expectations. Sharp December drops in Germany’s industrial production (-1.2%) and exports (-1.6%) had sparked fears that the region’s growth would disappoint.

Survey shows recession odds spiked in February
A Wall Street Journal survey of economists and CEOs showed that the odds of a US recession in the next 12 months have risen to 21% from around 10% at the end of 2015. Headwinds from abroad are largely blamed for the higher recession risk.

US weekly jobless claims show no signs of stress
Despite chaotic financial markets and growing recession fears, US weekly jobless claims, a closely watched high-frequency data series, show no signs of trouble for the US labor market. Initial claims for unemployment benefits fell 16,000 to 269,000, not far from the post-recession low of 256,000.


Q4 earnings continue to beat lowered expectations
According to Thomson Reuters, as of 9 February 2016, 67% of S&P 500 companies have reported earnings for the fourth quarter of 2015. The blended earnings growth estimate is -4.1% overall, but increases to 2.2% when the energy sector is excluded. Of those companies reporting, 68% have been above analyst estimates and 11% in line with estimates, while 21% have missed estimates. The blended revenue growth estimate is -3.5%, or 0.9% excluding the energy sector.

Mylan to acquire Meda for $7.2 billion
Third time was the charm for generic drug maker Mylan NV, which finally came to terms with Sweden’s Meda AB. The cash and stock deal is expected to close in the third quarter.


  • Japan reports its Q4 2015 gross domestic product on Monday, 15 February
  • China reports its January trade balance on Monday, 15 February
  • ZEW’s economic survey for February is released on Tuesday, 16 February
  • The minutes of the January FOMC meeting are released on Wednesday, 17 February
  • The minutes of the January ECB monetary policy meeting are released on Thursday, 18 February
  • The European Council holds a summit on Thursday and Friday, 18–19 February

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times;;;

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