A 3% climb in the S&P 500 in the week, driven by optimism on China trade and solid earnings from the banking sector. Earnings from two of the largest airline companies, Delta and United, were broadly positive, beating analyst expectations. Airline bookings are considered a bell weather on the health of an economy. Only a small percentage of the companies in the S&P 500 have reported so far, however from this small sample over 90% have beaten on earnings and two thirds on revenue. This would give an early indication that company directors are managing to hold margins. The FTSE 100 continues to lag US markets as Brexit uncertainties keep investors away from holding UK risk assets.
As the Vix index falls back below 20, sentiment in equity markets as improved. A few indicators of this would be the fall in the put-call ratio as fewer investors seem to feel the need to protect their portfolios. Stocks continue to outperform bonds from the start of the year, suggesting again that investors are prepared to move from safe havens to riskier assets. The oil price had another good week, helping sentiment towards global economic growth. The oil price has recovered despite some recent strength in the US dollar. Despite all the negative sentiment towards Brexit the pound came close to hitting 1.3 against the US dollar post the vote, however, it did give some ground back on Friday.
Looking to the week ahead, companies reporting earnings will pick up strongly. In the coming week, we get earnings from blue-chip companies Johnson and Johnson, Procter and Gamble, Starbucks and IBM to mention but a few. US macro data is going to be thinner on the ground as the continuation of the government shutdown takes its toll. At some point, analysts will start to input the effects of the shutdown into the economic forecasts. Markets in the US are also shut on Monday for Martin Luther King Day.
During the week we do get flash Purchasing Manager Surveys for January, this will give some indication of the forward state of the global economy. Two central banks this week meet, the ECB and the Bank of Japan. There are no expectations for either bank to change monetary policy. With continued uncertainty in Europe, aside from Brexit, not least concerns on economic growth there will be plenty to question Mario Draghi on at the press conference. Brexit will continue to make headlines as Theresa May has to reveal to parliament her Plan B post last weeks vote. Lastly Davos, the big jamboree for anyone who wants to see and be seen. Nothing of any interest ever comes from it that is memorable.