After seven straight up days for US equities, sentiment, at least according to the CNN fear and greed index has moved deep into greed. Likewise, the recent rise in bond prices has led to bond sentiment rising into bullish levels. If these indexes are considered any guide, a potential sell-off in both asset classes could be on the horizon. Several important announcements in the coming week could impact sentiment towards both asset classes.
On Wednesday the Federal Reserve released the minutes from their last meeting, the one in which they abandoned the intention to raise interest rates this year on economic concerns. What may become clearer as to whether that decision was based, not so much for their domestic economy, but on concerns for the strength of the global economy overall? Wednesday is a busy day for macro data as the latest inflation data for the US economy is released, and the ECB meet for their monthly rate decision announcement.
The ECB is likely to be quizzed on the weakness of the Eurozone economy, particularly Germany’s, as that economy continues to suffer from weakness in the car market. The ECB has already ruled out raising interest rates this year. Someone may pose the question as to whether the ECB would look to restart the bond-buying program it closed at the end of last year, should the eurozone economy continue to struggle.
As the Brexit wars continue, sterling remains remarkably resilient, apparently confident that some soft form of Brexit will be achieved by Theresa May. Also, on Wednesday we get the estimate for GDP growth for the month of February. The recent economic data has suggested that the growth, on Brexit uncertainties, will be weak. However, the past few months have shown something of an underlying resilience.
Earnings season starts this week for the US corporate sector, another factor that could impact equity sentiment. Expectations are now for a 3.9% year on year fall in company earnings overall. Although analysts still expect corporate earnings to grow year on year in 2019. Net profit margins for US companies are at the highest on record. Despite sluggish revenue growth, efficiencies have meant that company boards have met expectations. The Banks now start the season with JP Morgan and Wells Fargo at the end of the week. Some of the recent bullish sentiment is based on the positive noises coming from the China-US trade talks, and one must assume that a lot of that optimism is now baked into the market.