The expectation the Fed and the ECB will continue to stimulate the global economy resulted in the S&P 500 breaking through a new barrier of 3000. The Vix index falling back close to historic lows. The equity market appears to be buying back into the Goldilocks world of low inflation, modest growth and supportive monetary policies. The latest stronger than expected jobs report from the previous week and Friday's core Consumer Price Inflation coming in above expectations and above the Fed's 2% target, failed to knock equity investors confidence.
Bond investors seem to be taking slightly more notice of the stronger data as long-term Treasury yields climbed sharply this week. The inverted yield curve of the past few months, which caused much discussion as a potential forecaster of an impending recession, ended this week. Historically, with almost full employment and record stock markets, the Fed would be expected to be raising interest rates not cutting them. One must question how much the Fed has been influenced by either recent policies, decisions or rhetoric coming from the Oval office. The expectation the Fed will cut rates at the end of this month has also weakened the US dollar.
The pound has been under pressure as the currency speculators focus on Boris Johnson taking over in No 10 and the increased possibility of a no deal. The apparent never-ending saga of finding the replacement to Theresa May concludes on the 22nd of this month. The pound rallied modestly this week against the USD. There may be scope for sterling to recover further as negotiations will restart with a new set of negotiators from both the UK and Europe.
The coming week could see the focus moves away from macro events and towards company earnings as the US earnings season starts with the bank's sector kicking proceedings off. Expectations for the coming quarter have continually been downgraded, and a fall of 2.8% year on year is now forecasted. Not only do the banks report but a couple of high-profile technology names, Netflix and Microsoft also report. The combination of the likes of JP Morgan and the heavyweight tech names could set the tone early for the weeks ahead.
On the macro front, there is the usual smorgasbord of US data released over the coming five days. Including consumer confidence, retail sales and Industrial Production. For the UK economy, the data released this week will focus on inflation and inflation-related data, including earnings growth and unemployment. The main focus for markets may be the 2nd quarter estimate for China GDP, retail sales and Industrial production.