Market Action

• Major U.S. indices hit their highest points since last July and set 2016 highs this week. Bond yields have also hit their highest mark in recent weeks, signaling renewed risk appetite in markets. The energy sector led this week on the back of rising crude prices.
• With a quarter of S&P 500 firms having reported earnings thus far, earnings results have come in slightly better than expected but still represent a substantial decline from levels one year ago. Executives continue to cite the strong dollar as a headwind but expect a more accommodative currency impact moving forward.
• An earthquake early in the week, contraction in the manufacturing sector and poor trade figures for the sixth consecutive month pulled the Yen down against the dollar. The weaker Yen spells an opportunity for exporters, helping the Nikkei rally over 4% this week.
• Skepticism regarding China’s immediate economic future was renewed this week, despite some recent strong data. First, Fitch Ratings’ head of Asian sovereigns voiced concerns that credit growth is masking broken firms and failing loans. Then George Soros stated that he sees China’s current economy as a parallel to the U.S. just prior to the 2008 crash
• While markets have taken a renewed embrace of risk, the sentiment in high-yield bonds remains mixed. Junk bond indices have joined equities in the recent rally but credit downgrades in the first three and a half months of 2016 have already exceeded 2015 levels with more to come in the future.
• The ECB reiterated its intentions to leave monetary policy in an accommodative stance for the foreseeable future. Mario Draghi emphasized the central bank’s inflation goals. Inflation expectations, per Citi, are at their lowest point since 2004.
• Within 24 hours of starting on the job, Turkey’s new central bank chief cut interest rates, much to the delight of government officials. The move moved the lira higher in relief although the institution’s independence seems to be waning.

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