Volatility in markets remains high at the end of a turbulent week, according to Stefan Angele, head of investment management at Swiss & Global Asset Management. 

Although the major indices generally ended the week up – with the exception of those in Germany, France and Italy – this came at the expense of high volatility, driven by investors’ hedging activity.

Angele says that even German bonds were sold off along with the undesirable debt of other countries, while US Treasuries remained in demand. 

He has identified seven key factors that have moved markets in the past seven days. 


Moody’s cut Spain’s rating from A3 to Baa3

Angele commented: "This is another downgrade that mainly confirms what the bond markets have already priced in recently." 

"Yet it highlights the increased risk for existing bond holders due to the preferred creditor status of the ESM as the likely funding institution for the bailout, immediately putting everyone else in a not very attractive subordinated position." 


Spanish banks’ net borrowings from the ECB jumped to €287.8bn

The figure, announced by the Bank of Spain, represents an increase on the €263.5bn borrowed up to April. 

Angele said: "This confirms the severity of the Spanish financial system’s need for funding ahead of the country’s banking bailout." 

"Expect the Spanish banking system to remain heavily dependent on further central bank funding, even as the solvency problem is now being addressed." 


Greece’s unemployment rate jumped to 22.6 per cent

The figure for the first quarter is up from 20.7 per cent in the fourth quarter of last year, with the young disproportionately hit. Youth unemployment now stands at 52.7 per cent. 

"Expect the painfully high unemployment rate, especially among younger people, in some southern European countries to create a dangerous and potentially destabilising potential for social unrest and increased migration pressure that will affect the eurozone as a whole for many years to come," Angele continued. 


Eurozone inflation fell to a 15-month low

CPI in the bloc has hit a 15-month low, although at 2.4 per cent it remains higher than the ECB’s target of under two per cent.

Angele expects it to drop even further thanks to falls in the price of energy and food and an environment that makes passing on price rises all but impossible. 


The number of US jobless claims rose unexpectedly to 386,000

"Although the increase is not substantial, it is another sign that the US labour market is struggling to improve and has not gained much traction recently," Angele added.

"Expect more disappointing US employment reports in the months ahead."

Weak economic growth prospects have discouraged firms from hiring in the country. 


US CPI inflation fell below the Fed’s 2 per cent target in May

This is the first time for 16 months the figure has come in beneath the target, driven by falls in petrol and natural gas prices. 

Core consumer prices did increase by 0.2 per cent, however, although Angele says this should ease in the coming months as the headline figure continues to fall.


Indian inflation increased by more than expected

Vegetable prices in May were up by 49.4 per cent from a year earlier, while fuel and power costs climbed by 11.5 per cent.

At the same time, India’s economic expansion weakened to a near-decade low last quarter, and the country’s industrial output increased by a meagre 0.1 per cent year-on-year in April.

Production of capital goods, a key indicator of investment, even shrank by 16.3 per cent.

Angele said: "The economic slowdown is adding pressure on the Reserve Bank of India to reduce borrowing costs at its next policy meeting on June 18, despite unhealthy inflation rates." 

"This comes against the backdrop of a recent announcement by ratings agency Standard & Poor's, which warned that India may be the first BRIC nation to lose its investment-grade status."