The weekend newspapers are full of the poor start equity markets have had to the year, with plenty of speculation that there may be more pain to come. Last week saw equity markets down and Tesco shares higher, a variation of a trend from the past few years. Equity markets in Japan and Europe have lost a tenth of their value in the first two weeks of the year, the S&P is not far behind. Larry Fink, Blackrock’s chief executive comments that equity prices could fall another 10% before they stabalise, believing that there is not enough blood on the streets of the world financial centres.
Economic data, so far this year has been lacklustre at best, the latest US retail sales data adding to the gloom on Friday. It would appear that all the Federal Reserve’s efforts to keep an orderly market as they looked to normalise interest rate policy, have been in vain. John Auther’s in Saturday’s FT tries to analyse how much further equity prices could fall before they recover. The consensus view, and the one Mr Authers seems to favour, is that history suggests a 20% correction from the peak assuming no US economic recession. At present, it would appear, most economists are not predicting a recession, concluding that the Federal Reserve would not have moved to raise rates if they believed the economy was not robust enough to with stand it, or heading towards a recession. This seems logical, however the members of the Federal Reserve may have backed themselves into a corner and were there fore dammed if they did, and damned if they did not. The may have decided the message by not moving could have sent, may have been far worse.
The third quarter earnings season and an improvement to sentiment in emerging markets helped markets stabalise into the year-end. The fourth quarter earnings, which start this week in earnest, could well be as influential. We seem to write at the start of most quarters, expectations have been reduced making it easier for companies to meet; once again this is what investors will hope for. These lowered expectations means that analysts are forecasting this will be the third quarter on the trot of negative earnings growth for US companies. Looking to the week ahead, US Markets on Monday are closed for Martin Luther day. Major companies reporting will again focus on the banks with Morgan Stanley, and Bank of America on Tuesday followed by American Express on Friday. On the macro, December’s US inflation data will be released on Wednesday.
It’s a busy week in Europe, on Tuesday the ZEW sentiment survey, as well as the latest inflation data. On Thursday the latest interest rate decision followed with the post meeting press conference. The questions Mario Draghi may face, for a change could focus on his view of the global economy rather than euro areas monetary policy. Friday sees the release of January’s flash purchasing managers surveys. Recent manufacturing data around the globe has been lacklustre; analysts are forecasting the euro area bucks this trend with a slight improvement over last month.
As for China there is a raft of economic data on Tuesday, the latest estimates for GDP where analysts are forecasting an annualised rate of 6.9%. We also get December’s industrial production, retail sales and fixed asset investment reports.
Finally for the UK on Tuesday we get Decembers inflation data, and on Wednesday the latest inflation data for December.