Stand and deliver

So far global equity markets are having a better February, certainly than this time last year, and traditionally Februarys through history. Equities received a boost on several fronts during the week. Donald Trump re-iterated on Thursday that markets should expect a “phenomenal” announcement on taxes, investors will hope this could further boost the U.S. economy. Better than expected Chinese import export data on Friday also helped equity markets, boosting confidence in the strength of the Chinese economy.  

 As President Trump has found, running a company you own, where you expect to get your way, and a country that has its own checks and balances, are two different things. Markets are said to prefer executives who under promise and over deliver. Mr Trump needs to be sure he can deliver on his promises, or there is a possibility that the markets may get themselves ahead on promises. Fitch, the rating agency came out with a warning this week that the president’s aggressive style poses global risks.

The recovery in the UK economy appears to continuing as the latest manufacturing and industrial production data could well lead to further upgrades to economic growth expectations for the fourth quarter of 2016. As unrest within Europe continues to bubble under the surface, one must question, if the UK economy remains robust, whether this will increase the dissolution with the current setup in that region.

Concerns that once again stresses and strains are manifesting themselves within the Eurozone is not causing the jitters to risk assets that it did a few years ago. Political commentators appear to be dismissing the probability that Marie Le Pen will ultimately rise to power, perhaps in the same vein as they dismissed Donald Trump and Brexit.

Looking now to the week ahead, Janet Yellen testifies this week to congress on the state of the US economy. The focus, as always will probably remain on what she sees as the likely path of US interest rates in the coming year. The public utterances from the Federal Reserve have generally been more hawkish than their actions. This may well be the case again this week. She appears to have played the promise and deliver trick rather well. Promising to tighten policy, however delivering a more dovish action helping underpin risk assets.

Earnings season continues to report a robust fourth quarter amongst the companies making up the S&P 500. However, it may be of note that companies making up the Russell 2000 index, are currently recording a modest year on year decline.

Along with Janet Yellen’s testimony this week there is a collection of U.S economic data including inflation and retail sales. It is quite a busy week for the UK as well, including a selection of inflation data on Tuesday, unemployment on Wednesday and retail sales on Friday. For Europe, we get the second estimate for q4 2016 GDP. Forecasts are for the economy to have grown at 1.8% year on year.


Posted on February 12, 2017 .