Night gathers and now my watch begins

Only a few weeks into the second quarter of the year, the S&P 500 is knocking on the door of its all-time high. The FTSE 100 has climbed over 10%, despite economic uncertainties and a stronger pound. The change in sentiment from the start of the year has been notable. In the past week, there was little to rattle investor sentiment. The Vix index, considered one measure of fear and greed among equity investors is trading back close to historic lows, having fallen over 50% from the start of the year. The Russell 2000 index of smaller capitalised stocks up nearly 18% year to date. Equity markets were provided with another leg forward after some positive export data from the Chinese economy on Friday, although import data failed to meet expectations. The next test for equity sentiment will be the first quarter earnings season. JP Morgan offered an encouraging start as earnings and revenue comfortably beat expectations. Commenting on the beat the company but it down to a bright economy and strong lending, encouraging words for equity investors.

The other topic that continues to dominate headlines is the ongoing Brexit negotiations. However, this may change now the deadline has been extended through to October. Sterling has seen a great deal of bearish positioning; the latest developments have seen speculators unwind some of that positioning. The pound finished the week just below 1.31 against the US dollar, a level it has maintained for the past few weeks. UK gilt yields moved a little higher on Friday but seem to continue to offer little in the way of value as the yield on the ten-year gilt remains just over 1%. What is also noteworthy, despite all the Brexit headlines, many of doom and gloom, the shape of the curve has hardly moved this year.

Looking to the week ahead, as we said earnings will be significant, there is a broad church of companies reporting. Johnson and Johnson and Coca Cola were a tad disappointing last time they reported; investors will hope for a more upbeat report. IBM, Bank of America and Netflix other stocks that could make headlines in the coming days.

Other factors that will be watched closely by equity and bond investors will be the release of the first estimate for economic growth for the first quarter of the year for the Chinese economy. Analysts are forecasting annual growth at 6.4% with a quarter on quarter growth forecast to be at 1.5%. During the week we also get the results of the flash purchasing manager surveys for the month of April. There is a reasonable amount of economic data for the UK economy including inflation, unemployment, wage growth and retail trade. Finally, what will be anticipated by many is the last season of Game of Thrones starting on Monday evening.

Posted on April 14, 2019 .