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January was a month for the central banks, says S&P DJI’s Silverblatt

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Global market returns were mixed in January, as the US declined and non-US markets mostly broke even, at least on a weighted basis, according to Howard Silverblatt, Senior Index Analyst, S&P Dow Jones Indices. On a country level, 20 of the 48 markets gained, as central banks took a leading role.

The ECB announced a USD67 billion purchase program, which would start in March 2015 and go through to at least September 2016, resulting in purchases totalling USD 1.15 trillion.  Both the size and duration of the program was larger than expected. The ECB added that purchases could be extended, depending on "the path of inflation”, which was the ECB’s equivalent of the US Fed’s “data dependent” program. The market reacted positively to what was seen as a more aggressive approach, as the euro fell, posting an 11-year low against the US dollar. 

Even before the ECB’s announcement, the Swiss National Bank took action, as it unexpectedly removed its currency cap of 1.2 Swiss francs to the euro, as currency leaving the Eurozone pushed the Swiss franc to a record level. 
 
“Unexpected” was an understatement for currency traders, with some scrabbling for additional capital to shore up capital losses.

The Bank of Canada unexpectedly cut its overnight rate to 0.75% from the previous 1.0%, as it described the move as “insurance” against any potential fallout from lower oil prices. 

The Bank of Japan maintained its stimulus, as it cut its core inflation forecast for fiscal year-end April 2015 to 1.0% from 1.7%; the bank cited lower oil prices. 

The Bank of England kept its rates, as the previous two dissenters (desiring an interest rate increase) agreed with the stance, making the decision unanimous. 

The People’s Bank of China rolled over year-end loans (USD 43.4 billion) and added funds (USD 8 billion), as it needed to ease liquidity issues caused by year-end demands. 

Denmark lowered its deposit rates three times during the month. 

Russia cut its interest rate by 2%, to 15% from 17%, after increasing earlier, as it tried to support its currency.

Other cuts were also posted by India and Turkey.
 
The International Monetary Fund (IMF) got in on the action, as it reduced its global 2015 growth rate to 3.5% from the previous 3.8%, and 2016 to 3.7% from the prior 4.0%, citing lower oil prices.
The IMF did increase the US rate to 3.6% from the prior 3.1%, as it reduced China to 6.8% from the prior 7.1% estimate (as Chinese reports said the official 2015 rate would be 7.0%).  
 
The IMF also added a note later in the month that the Middle East could post export losses of USD 300 billion, as it cited large cash buffers that could insulate the loss; the agency had lowered its growth rate for the region to 3.4% from its October 4.5% estimate. 
  
In Greece, the Greek opposition party Syriza party won a majority vote (approximately half of the 300 seat assembly), as it quickly formed a coalition government.  The anti-austerity group wished to renegotiate aid loan programs, permitting greater stimulus in Greece, as well as debt forgiveness plans; the plan directly conflicts with the European Commission and ECB plan.  Public statements flew, as Greece took action to reverse prior programs and rehire public workers—none of which went well with some countries (especially Germany).  The election of the anti-austerity party also appears to be affecting Italian parliamentary elections.   The Street’s view was (right or wrong) that the EC needs to negotiate with Greece, and Greece needs to understand that its other choices are a lot worse. 
 
In US politics, President Obama made his annual State of the Union address, which held no surprises, and the response by the opposition party was not a surprise, either.  The calls to work together lasted all the way until the next morning, which was longer than expected. 
 
Global Markets were down, Emerging Markets were up slightly and Developed Markets were down
 
For the month, global markets were down 1.53%, but without the US decline of 2.88%, they were off a small 0.13%—which is a turnaround from the recent trend of the US pulling the global index up. 
 
Emerging markets did better, as 8 of the 23 advanced for a consolidated 0.34% gain. 

India outpaced the rest with an 8.25% gain, bringing its one-year bull run to 49.89%. 

Greece was the opposite, as its new government appeared not to inspire investors, with that market off 22.60%, and the one-year decline being 51.72%. 

Russia posted a 0.64% decline, as the ruble continued to be under pressure, as were Russian bond offerings. 

Oil producing countries Qatar and U.A.E. declined 3.70% and 4.14%, respectively.
 
Developed markets were off 1.74%, with the ex-US loss being 0.25%, as 12 of the 25 market advanced.

Hong Kong did best, adding 4.37%. Germany posted a 1.48% gain, with money appearing to flow into that market. Japan was noticeably up, gaining 2.51%. Denmark up 1.07%. Canada did the worst, off 8.69, as it cut its interest rate, citing oil declines. 
 
Interest rates decreased for the month.
10-year US Treasury closed at 1.68% (from last month’s 2.17%, year-end 2013’s 3.03%, 2012’s 1.75%).  The 30-year US Treasury closed at 2.24% (2.75%, 3.94%, 2.95%). 

The euro closed at 1.1289 (1.2098, 1.3756, 1.3197). The pound closed at 1.5073 (1.5582, 1.6564, 1.6242). The yen closed at 0.00855 (0.00835, 0.00951, 0.01153 [117.35, 119.80, 105.2, 86.74, reverse reference, which is usually used]). 
 
Oil continued down, closing the month at USD 47.60, as it traded under USD 44 for the first time since 2009, down from last month’s USD 53.27; the only potential good news was that oil traded in a wide range for the past two weeks, USD 44-48, so some stability could be coming.  Oil companies raced to reduce their 2015 capital expenditures, drilling, and exploration, citing the lower oil prices.  At some point, supply and demand will need to come into play, but that is not expected to happen soon.  US pump prices decreased to end the month at USD 2.044 (2.299, 3.271, 3.257). 

Gold closed at USD 1,284.50 (1,183.20, 1,204.80, 1,675.60). 

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