Transport index performance adds to the sense of caution

At present there seems little doubt central bankers do not want to risk a global recession. Despite this we saw a little fear enter equity markets as we pointed out there were signs of “risk of”. Friday’s US jobs data reported just 20000 jobs were added in the past month adding to concerns that economic growth is slowing. Further evidence of how the trade dispute is affecting the Chinese economy, China reported on Friday a 20pct drop in export in February, imports fell by just over 5%. Both numbers were well behind expectations. Stocks in Asia had a bad day on Friday.  

Larger cap US stocks outperformed smaller cap ones by 3%, and the yen gained almost 1% against the USD in the past five days. Bonds were in demand as yields fell. Industrial shares fell and consumer staples outperformed discretionary spending.

The Dow Jones transport index fell 3% on the week after 8 down days. However, there was something of a recovery on Friday, breaking a down trend that has lasted from the middle of February and the worst in almost ten years. To give a sense of the possible significance according to a CNBC report, the last time the Dow Transport had such a poor run the Dow Industrials index lost 7%. Sentiment indexes were moving into greed, after the last few days we are closer to neutral territory.

If you want a clear picture of how the market sees the current risks in Europe. After the ECB statement on Thursday, yields on the ten-year German Bund fell to just 6 basis points. That would continue to suggest the level of fear remains high within the euro zone.

Brexit vote this week will make many headlines as it seems highly likely Theresa May will lose again. Predictit suggest there is just a small chance that Britain will exit the EU on the 29th of March. ANZ Research believes only a 10% chance of a no deal. If these probabilities are correct the possibility of the UK leaving Europe is virtually zero. Based on this it was a little surprising that the pound had a poor week against the US dollar falling back closer to 1.3. The FTSE 100 saw little benefit from the fall in sterling.

Looking to the week ahead we get a selection of data on the strength or otherwise of the US economy. Durable goods orders, inflation, consumer sentiment, new home sales and the New York State Manufacturing index all are all released in the coming week. Aside from Brexit Philip Hammond will be delivering his Spring Statement on Wednesday. China will produce updated industrial production data during the week.

Posted on March 10, 2019 .