100 billion and no-where to spend it

Equity markets continue to rise as the central bank of America minutes reinforced the dovish stance the market had expected. Alongside these hopes that the China-US trade talks will positively resolve themselves in the coming weeks. This continued rally in US equities is despite some further evidence that the US economy is slowing. The latest in the form of the Philly Fed Manufacturing index suggesting the nations factory activity growth is still slowing. Global Manufacturing Purchasing Manager index is approaching 50, ex-US, implying that global manufacturing is approaching contraction. Wells Fargo now puts it nearer to 40% possibility the US economy falls into recession. As we have pointed out on more than one occasion, central banks appear once again to support asset prices. Should economic growth continue to slow, some questions may start to be asked about how effective this policy might be the second time around. On top of this, the CNN fear and greed index has now moved well into greed territory.

Warren Buffet released his annual letter to shareholders. The sage’s words are always keenly absorbed. This year, he did not appear to have many new pearls of wisdom. He suggested that Trump took too much credit for the strength of the economy. Having said that he would probably acknowledge Mr Trump is not alone as Presidents claiming that prize. He has 100 billion of cash burning a hole in his pocket, finding little in the way to spend it on. Just to prove he is human after all he had to take a write-down of 15 billion dollars on his investment in Kraft Heinz after the stock price fallen over 20%.

Looking to the week ahead, the latest estimate for growth in the fourth quarter for the US economy will be released. Other data that may show how much the US economy is slowing is the latest Institute for Supply Management Purchasing Manager Survey for February. The final reading for the Michigan consumer sentiment.

For the UK Theresa May makes her latest speech on the progress or otherwise of Brexit. Despite the continued political uncertainty and the lack of clarity to the outcome, the pound has climbed back over 1.3 against the US dollar in the past five days. The FTSE 100 did give a little ground back over the week. The Bank of England will release its monetary indicators this week.

As for Europe a smorgasbord of data ranging from business surveys, inflation, employment and PMI surveys. The latest Chinese PMI data will also be eagerly watched.

Posted on February 24, 2019 .