Duncan Donald

Mon, Apr 15

KYLIN TALK | Weekly Markets Update 15.04.19

In the UK, Prime Minister Theresa May sought agreement of an extension to Article 50 delaying Brexit until 31st October this year. The extension was what the UK wanted and needed as no agreement can yet be reached in Parliament, with the PM’s preference being a shorter extension that averted inclusion in the European Council elections. However, the EU did grant the UK the ability to cut short the transition IF Parliamentary agreement can be reached prior to the new October deadline.

The markets sought solace from the fact that for now the cliff edge “no-deal” scenario had been averted in a week that could have offered great volatility trading in the Pound was positive with a rather subdued feel, struggling to break out of a 1.30-1.31 range versus the US Dollar. So, for now, Theresa May has bought some time and it seems to be much needed as she attempts to unite the opposition in the house. There were comments out of both the Conservative and Labor parties that alluded to the fact discussions were going well with Mrs May dropping a hint that she may be prepared to remain in the Customs Union with the EU moving forward, something she has been very much against to date.

There remains much work to be done in the UK, the sigh of relief seen this week will not last long. This week Parliament is in recess for Easter, but there will unquestionably be continued unofficial meetings as may within her own party are unhappy about her entertaining the opposition and the thought of a softer Brexit. With her popularity at a low in the UK it's conceivable we could see a power struggle and the markets will be fearful of a leadership challenge or general election that could bring a more hard line Brexitier. Over the weekend we have seen comments in the press centering on the populist polls that show labour leader Jeremy Corbyn as the front runner should there be a general election, with Labours socialist views this could well weigh heavy on the pound from an investment perspective.

Developments in China dominated the markets into the end of last week when strong exporter data firmly offsetting the import data showing that one of the largest economies is not showing the signs of contraction that the markets feared. With good key economic data continuing to come out of the US especially the bounce back in employment data seen earlier in the month, optimism for the global economy is slowly drifting back.  A slightly less dovish (negative) set of minutes from the Federal Reserve Open Market Committee (FOMC) last Wednesday night confirmed the fact that it remains unlikely we see further US rate hikes this year, and perhaps lessened the possibility of rate cuts. With even a slight pull back in Eurozone data this week, in particular data from Germany, as well as a moderately more optimistic European Central Bank meeting from chairman Mario Draghi, it remains unsurprising that we have seen global stocks enjoy a good bounce back.

It wasn't just the economic data and key data points that helped buoy the stock market, we are now entering earnings season again and the end of last week brought some of the major companies data. The key takeaway of the last quarters earnings that weighed heavy on the markets wasn't so much the data itself, more the forward guidance for future earnings that was conservatively delivered.  Last week brought the first glimpse of some of the major US companies and from the banking sector JP Morgan and Wells Fargo came through it particularly strongly. The announcement of a new online streaming channel from Disney also had the market surging on Friday, it is rare to see such appreciation of a high yielding established stock as it soared to a 10% gain following the news.  

The rebound in the stock markets coupled with continuous developments from the global trade negotiation perspective brought a big shift in the “risk” related currencies. One of the main movers in the week was the Japanese Yen which was firmly on the backfoot losing ground in particular the US Dollar and Euro.  The week ahead will be cut short by holidays, with it being Golden Week in Japan and the Easter Holidays affect most of Europe and the US.

The Week Ahead

Monday – A relatively quiet start to the week with no high-level data. In the morning session we have the Rightmove House Price Index from the UK. This is followed by Germany’s Bundesbank’s monthly report. In the US session we get the Empire State Manufacturing Index and then the Bank of Canada Business Outlook Survey.

Tuesday – At the start of the session we receive the Minutes of the last Reserve Bank of Australia’s Interest rate setting meeting. UK Employment data comes at 9.30 am with the release of Average Earnings, Unemployment and Claimant Count data, with the Unemployment rate expected unchanged at 3.9% and modest beats for earnings and claimant forecast. At 10am we receive the ZEW Economic sentiment data from Germany which is forecast to last months -3.6 to 0.9. In the US session Canadian Manufacturing sales is released as well as US Industrial Production.

Wednesday - The day starts with Chinese GDP data forecast 6.3% versus 6.4% last month, we will also get Industrial Production, Retail Sales and Employment Data at the same time. Eurozone Trade Balance comes before key UK inflation data at 9.30 am, Eurozone Inflation at 10am then Canadian Inflation at 1.30. In the US session we also receive the US Trade Balance numbers and Wholesale Inventories.

Thursday – Starts with Australian Employment data. Early in the European we see key PMI’s from across the region before UK Retail Sales at 9.30. We get a further update on the Retail sector from the US and Canada in the US session, followed by Manufacturing and Services PMI followed by Business Inventories.

Friday – With holidays across the UK and Europe, data is limited to US Building and housing stats in the afternoon session.