A quiet week for equity markets despite the varied and extensive range of economic data we received from all parts of the globe. The S&P 500 managing a marginal gain for the week. The FTSE 100 continues to be held back by the recent strength in sterling. US GDP estimates for the first quarter came in slightly better than expectations, and towards the end of the week, China manufacturing data reported something of a rebound in January. Inflation in Europe picked up last month despite the economy continuing to look weak. Brexit is never far from the headlines and is likely to dominate headlines as we come closer to the vote on the 12th of March. The probability of Theresa’s May deal going through seems remote at this point. Should it fail, the likelihood is a vote to extend the timeline will pass and the ruling out of a “no deal”. That will leave Theresa May nothing to negotiate with the EU and therefore it seems difficult to understand how the 2016 vote can be delivered. The pound climbed above 1.32 against the US dollar during the week, however, closed just below that level at the end of the week. Gilt yields also moved higher during the week as the threat of a disorderly exit from Europe becomes a less likely scenario. Bonds, in general, around the globe sold off.
The Vix index closed the week below 14, suggesting that investors remain confident, despite the mixed economic data, that the global central banks are happy to continue to provide a supportive backdrop. Jerome Powell’s testimony to Congress this week underlined the recent more dovish tack the Fed has been pushing in the past weeks.
As the AAII investor sentiment index reports optimism for US stocks amongst retail investors hits a year high. A report from Barclay's hedge on fund flows reports that despite the recent recovery in equity prices the exodus from equity funds, that started in October last year continues. This may suggest that equity sentiment is not yet entering greed territory.
The highlight of the week ahead will be the ECB’s interest rate meeting on Thursday. The ECB is expected to lower growth expectations for the year ahead. With central banks taking a more dovish tone in recent weeks, expectations will be for the ECB to maintain this theme. The Federal Reserve will publish its Beige Book on economic conditions and Fed policymakers including Jerome Powell, John Williams and Loretta Mester are scheduled to speak. China’s National People’s Congress will dominate the Asian news as we may get some insights on their view on growth for the year ahead and whether they may wish to stimulate the economy further.