The midpoint of January can be a stressful time for those following football, with the transfer window now firmly open, the period offers teams a final chance to acquire reinforcements for the second half of the season. However, there is one game that has been played for well over 18 months now, where a certain set of signatures have been all that many market commentators crave.
Wednesday saw the US and China finally sign an agreement aimed at easing a burgeoning trade war that had threatened to derail both global growth and a sustained rally in stock markets for the best part of two years. Branded “transformative” in the US and “win-win” in China provided a cause for cheer with MSCI’s benchmark for global stocks rising to another record high along with the tech-heavy NASDAQ. The US is also planning to lift its designation of China as a currency manipulator, a move that only added to the positive mood. On the flip side, gold prices inched their way lower as a risk-on mentality gripped investors.
A rally in global equities, something of a signature in the US tech sector, allowed Google’s parent, Alphabet, to become the fourth US company to ever top a market value of $1 trillion. Having risen 17% over the last three months alone, many are now wondering how much further the stock can go, with data showing short interest (those betting on a fall in price) increasing to a yearly high.
The start of the US earnings season this week however, justified such a prolonged rally stateside with banking behemoth JPMorgan reporting a record fourth quarter profit that topped Wall Street’s predictions. Bucking the trend however was Wells Fargo, down 5% after citing regulatory troubles and a string of scandals. The results bode well for the next few weeks as corporate earnings for all sectors start to flood in.
On domestic shores, a January rate cut is beginning to look ever more likely as a string of disappointing economic data releases gave the Bank of England’s rate setters something to think about. Perhaps the most telling figures released was a reading of inflation, showing that prices only rose 1.3% last month, down from 1.5% the month before. As a reference point, the Bank of England has a target of 2% with a rate cut realistically the only option to spur consumer spending once more. Market indicators now suggest more than a 60% chance of it happening by the end of January. The data also showed that wages continue to outstrip price rises.
The coming week sees US earnings season get into full swing as the technology sector, often credited with driving the S&P 500 to record highs, sees its main constituents starting to release their earnings’ reports for the fourth quarter of 2019. From Apple to Amazon, the world’s largest companies will not only be reporting but also issuing some forward guidance, coupled with their broader views over how they see the industry.
Forward guidance should be a theme for the coming week as the world’s leaders converge in Davos on Thursday for the World Economic Forum. The WEF is attended by central bankers, prime ministers, finance ministers, trade ministers, and business leaders from over 90 countries. The majority of meetings will be open to the press, with delegates regularly talking to reporters throughout the day creating market volatility as they do so. Friday should see pronounced volatility, especially in currency markets as Christine Lagarde, European Central Bank’s President, is due to participate in a panel discussion titled "Global Economic Outlook".
The end of the week should see attention switch to this side of the Channel as flash Services and Manufacturing PMIs are released for the UK. With the chances for a rate cut seemingly rising all the time, more poor data for the UK’s main two industries could seal the deal for the Bank of England’s rate setting committee when they convene at the end of the month.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in January 2019.