Ask me no questions and I will tell you no lies

European stocks, particularly German ones, are set for a positive start, as Friedrich Merz’s Conservatives have won Germany’s election, and the AfD did not do as well as the polls predicted. Mr Merz’s conservatives were well ahead of rival parties but just fell short of the 30% vote share they had expected. Mr Merz will have a full in-tray on his first day as he will look to find ways to boost Germany’s struggling economy and infrastructure, build ties with the US administration, find a working coalition with hopefully one partner, most likely the Social Democrats, and one assumes become a leading figure in the attempt to find a peace plan between Russia and Ukraine. The Euro strengthened on the election result.

US markets, on the other hand, are not looking quite so rosy, as the S&P 500 fell almost 2% on Friday. There are warning signs, as in the past few weeks, consumer staples and healthcare have been the best-performing sectors. In the past month, the S&P 500 has been down. A few weeks ago, I dared suggest that the US economy could start to face the stagflation scenario talked about so much in regard to the UK.  The final reading on Friday of the Michigan Consumer Sentiment survey recorded a fall in confidence and a rise in inflation expectations. Now economists are talking about the possibility the US economy is suffering from a slowdown in growth on housing; consumers are running out of spare cash, a possible weakening jobs market, inflation nagging consumer confidence, raising the possibility the US economy is heading into a recession.  On Friday, the flash purchasing manager survey came in below expectations, another sign of flagging confidence in the strength of the US economy and indications that the threat of tariffs and government spending cuts may be impacting sentiment.

The fourth quarter earnings season is coming to an end. Overall, it’s been a pretty positive quarter, which in part has helped support the S&P 500 led, as one would expect, by information technology. This week, we possibly have the biggest of those reporting, Nvidia. We also get a raft of US economic data. Of particular note will be personal income and spending, PCE price indices, durable goods orders, the second estimate of Q4 GDP growth, and CB consumer sentiment. In the housing sector, attention will be paid to the S&P/Case-Shiller Home Price year-on-year data and new and pending home sales. All of these data points have the potential to influence investor and economic sentiment. Several members of the Fed are also due to make public speeches this week. There is a limited amount of new UK economic data. As for Europe, aside from the German elections,  inflation data for France, Italy, Germany, and Spain will be of note.