The Week in Review: Stable Emerging Markets, U.S. Unemployment

Equities broadly rallied for the week as cooling tensions in Ukraine, stable unemployment rates in the U.S., and emerging markets saw growing demand for debt. Investors have eschewed the risk aversion that saw U.S. stocks fall in the first half of August, while commodity prices sought a bottom and fears of deflation were replaced with confidence in a global return to consistent growth.

Equities broadly rallied for the week as cooling tensions in Ukraine, stable unemployment rates in the U.S., and emerging markets saw growing demand for debt. Investors have eschewed the risk aversion that saw U.S. stocks fall in the first half of August, while commodity prices sought a bottom and fears of deflation were replaced with confidence in a global return to consistent growth.

The S&P 500 gained nearly 2% by the close of trading on Thursday as investors took note of high-level talks between Ukrainian and Russian officials at the beginning of the week, and the Federal Reserve’s announcement that it will continue its accommodative monetary policy in the short term, but that an improving economy may spur it to begin tightening sooner than expected. In Asia, hints of a more accommodative monetary policy and loosening credit controls in China have helped equity markets in the region’s largest economy pare losses incurred earlier in August.

Fed Policy, Commodities

On Wednesday, the Federal Reserve announced that their target Federal Funds rate may rise sooner than expected, but inflation remained below their 2% target, allowing for low rates in the short term. While inflation has remained low in the U.S., the CPI has seen prices rise by 2% on an unadjusted basis for the twelve months ending in July, prompting some analysts to say that inflation is beginning to rise from the low 1.5% rate seen in 2013.

Despite inflation fears, commodities have broadly fallen in 2014 with an oil glut and hyrdofracking boom in the U.S. keeping energy costs low. The World Bank has estimated that oil will rise to $104 per barrel in 2015.

Meanwhile, copper prices have risen in recent years, signaling that construction and manufacturing may be on the rise. In London markets, copper rose 0.8% in recent trading after falling with stocks in early August.

At the same time, demand for gold, which is often used to hedge for inflation, has hit its lowest point since June after falling for the past week. The spot gold price in New York fell to $1,275.25 on Thursday.

Jackson Hole Meeting

Federal Reserve members met with other Central Bank leaders in Jackson Hole, Wyoming, at an annual conference designed to discuss changes in financial markets and monetary policies. Federal Reserve Chair Janet Yellen will speak on labor markets at 10:00 a.m. on Friday, when she is expected to hint at a more hawkish monetary policy amid slowly improving labor conditions in the U.S. economy.

European Central Bank President Mario Draghi will also speak at the event, in which he may discuss the possibility of a full quantitative easing program that will help boost European markets after both France and Germany reported weaker-than-expected GDP figures and Italy fell into its third recession in as many years.

Bond Yields Fall in U.S., Europe

Growth expectations for the Eurozone have weakened, and recently Germany sold bonds at a 0% yield, after yields collapsed in 2011 and failed to continue to rise after a slight increase in 2013. Meanwhile, U.S. Treasuries have fallen further, with 10 year Treasuries paying 2.41%.

With low yields in European and American markets, emerging nations have found greater opportunities to issue debt. Earlier this week, the Bank of China surprised markets by issuing $5 billion in subordinated bonds despite announcing a 17% increase in outstanding nonperforming loans.