INSIGHTS

Duncan Donald

Mon, Jan 20


Stock markets surge as Geopolitical fears fade

 

Last week saw positivity and optimism flood back into the global markets as major indices soared. It was the US indices that continue to lead the way with the S&P hitting 3300 and Dow Jones 29,350 as global risk faded. As the tensions in the Middle East faded into the background following the airstrikes in Iraq, safe-haven investment was ditched as fear of missing out investors clamoured to ride the surging wave of the stock markets. 

 

Last Wednesday also brought the signing of the Phase One trade deal between the US and China, a welcome sight to both nations that ensures no additional tariffs will be imposed as we move towards a Phase Two agreement. The ceremony which was delivered in typical Trump style, championing his personal and wider teams successes. It did fall short on detail of the second phase of negotiation timescale, but from his earlier comments, this could be seen after the US elections later this year. 

 

We are in the midst of US Earning season and another reason for the buoyancy of the stock markets is the solid numbers that have been seen to date with JP Morgan, Citibank, Morgan Stanley and BoAML all reporting strong numbers. In the week ahead we look to American Express, IBM, Intel and Netflix for their numbers, Netflix is expected to show the strains of heightened competition within their sector. 

 

The US impeachment saga upon Donald Trump has entered its next phase with the Senate now expected to vote on whether to impeach the President. The markets remained unperturbed by the situation with the Republican majority in the Senate making it incredibly unlikely that a two-thirds majority will be met to impeach the President.  

 

In the UK, following on from the warnings signals and forward guidance of willingness to act by two Bank of England monetary policy committee members at the tail end of last week should we see softening of data, we did then see a significant downturn in Retail Sales in the UK last Friday. After an unexplainably strong week for the pound taking it to highs of 1.3118 versus the Dollar, it closed the week at 1.3000 giving back all the gains. Eyes will firmly be on the employment data out of the UK on Tuesday with estimation for UK data turning pessimistic as the realities of Brexit start to pinch. 

 

There are three Central Bank interest rate meetings this week, first up is the Bank of Japan on Tuesday, followed by The Bank of Canada on Wednesday then finally the European Central Bank on Thursday. Whilst no movement on rates is expected at any of the meetings, the focus will be on the guidance and outlook shared in particular from Christine Lagarde at the ECB. 

 

The Week Ahead

 

Monday - Quiet session in Europe and Martin Luther King day in the US

 

Tuesday - BoJ interest rate decision early in the Asian session. UK employment data at 9.30 ahead of German Economic sentiment data at 10 am.  The World Economic Forum Conference begins in Davos

 

Wednesday -  UK Public Sector Net Borrowing at 9.30. In the US session first up is Canadian Inflation data before the Canadian Interest rate meeting at 3 pm

 

Thursday - Australian employment data comes first in the Asian session. At 12.45 the ECB announce interest rates followed by the press conference at 1.30 pm. 

 

Friday - French, German and Eurozone PMI data dominates the morning session before we again hear from ECB Head Lagarde at 9.30. At the same time, we receive UK Manufacturing and Services PMI data. In the US session, we get Canadian Retail Sales and UK Manufacturing and Services PMI

 


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