G7 government bonds, the US dollar and the Japanese yen were amongst the assets that benefited from the flight to quality last week while the euro remained under pressure as sovereign default fears continued to focus on countries within the single currency zone, most notably Greece.

Given the vastly different fundamental backdrop of various asset classes, a continuation in the broad-based risk asset sell-off seems unjustified. In equities, three-quarters of S&P 500 companies (market cap basis) have reported earnings with 75% beating analysts estimates; those companies have also shown positive top-line revenue growth for the quarter, a sign that the economic recovery is indeed taking hold.

Analysis

With earnings growth consistently beating estimates, it’s possible analysts will raise their earnings targets going forward which, when combined with the decline seen in equity prices, should push valuations back into cheap territory. On a cyclically adjusted basis (Graham-Dodd P/E), equities remain good value, which augurs well for the asset class if earnings are, indeed, returning to trend.

Global purchasing managers’ indices for January were released last week and increased marginally at the aggregate level (53.2 versus 53 previously) which, given the recent gains seen in this metric, was a disappointment to markets. Nonetheless, the number indicated continued growth in the global economy as it came in above the key 50 boom/bust line.

US Data

The release of the all-important US non-farm payrolls (employment) data on Friday was of particular interest given the concurrent release of the benchmark revisions to last year’s data. As indicated beforehand by the US Bureau of Labour Statistics benchmark revisions showed that the US economy lost 930,000 more jobs than initially reported throughout 2009 due to an overestimation of job creation by the business birth/death model. Otherwise, the data showed that the US economy lost 20,000 jobs in January, which was worse than the 15,000 increase in employment that had been expected by analysts.

Notwithstanding the poor headline print, temporary help payrolls - a leading indicator for the overall jobs market - increased for the third straight month, a positive indication for future for total payrolls going forward. The beginning of hiring for the US census, which is expected to add about a million jobs to payrolls in total, will become apparent in the data next month and its effects are expect to peak around April.