The ECB monthly interest rate meeting reinforced the dovish view the market had anticipated as the committee slashed growth expectations for the year ahead to just 1.1%. Mario Draghi committed to leaving interest rates where they are for the during of his term at least, effectively to the end of the year. The ECB also introduced further monetary stimulus to the banking system only months after stopping its quantitative easing program. The ECB statement caused the euro to fall however this provided little support for European markets.
Recently we have had a few warning signs equity markets are due for some breathing space. The yen (considered a safety haven) rising against the USD as well as larger capitalised companies outperforming smaller ones. The Vix index climbing above 17 is another indication that investors’ getting are becoming more cautious. Consumer staples are outperforming discretionary another warning sign. Cyclicals have been outperforming defensives so far this year, that trend also reversed.
Equity markets, having baked in the expectation of a trade deal with China, were taken aback a Donal Trump talked of a good deal or “no deal”. A good deal is one where all parties walk away happy, is what one is always taught. Hopefully, that is to what Mr Trump is referring. Mining stocks were hit particularly hard on Thursday as a result of these comments.
Brexit continues to make headline news as we get closer to Tuesday's vote, which newspaper reports suggest the deal will be rejected. Should this occur, it is likely to be followed by a vote on a no deal the next day. Assuming that is a vote in favour of a rejecting a no deal, the pound may rally further. Quite what the incentive for Europe to open further negotiations seems hard to comprehend should this be the outcome.
The recent economic data from the UK has suggested the UK economy was bordering on recession, post the sharp GDP fall in December, accompanied by the current weak Purchasing Manager Surveys. Pantheon Macro Research has tried to paint a rosier picture suggesting something of a rebound may be on the cards. They believe that GDP growth for the first quarter of 2019 will be 1.5% year on year.