The past week saw the recovery in equity markets continue, the S&P 500 climbing over 2% the markets in Europe around 1%. The Vix index closed the week back below 20, suggesting investor confidence continues to return. Ahead of the Brexit vote on Tuesday as MP’s struggle between backing a deal they don’t like or facing a “no deal” the pound had a good week against the US dollar, rising close to 1.29. Part of the recovery is being aided by some dollar weakness post a more dovish Federal Reserve statement. Optimism on trade talks with China helped the trade-sensitive stocks, such as industrials and semiconductors outperformed the broader index. Smaller capitalised Russell 2000 index continues to outperform the broader S&P 500.
Aside from the Brexit vote the big talking point this week will be the start of the earnings season. The Citi earnings revision index shows the most significant downward revision to earnings since 2008. Fourth-quarter earnings are expected to grow around 14% however downgrades have seen expectations for the first quarter 2019 earnings to grow just under 4% from 8% towards the end of last year. As we commented on during the week, lowering expectations will make them easier to meet. The week starts with the banking sector. What is often more important when it comes to earnings season is not necessarily the profits announced but the accompanying statement on the outlook for the year ahead. This season could have a significant impact on the performance of the equity markets for the coming quarter.
Macro events that could impact market sentiment this week are US consumer confidence. For the UK we get inflation data, inflation is expected to fall to two year low. Retail sales are expected to fall again. After the comments from the retail consortium and the retail results season this will not come as a great surprise.
Some of your readers will remember we had the opportunity to appear on Share radio with Nigel Cassidy. Nigel now produces a podcast on events in the past week and looking to the week ahead. We appeared on Friday. Paul Joins Nigel to discuss current thoughts on the outlook for the global markets, below is the link.