Last week global equities continued their 2019 gains making the three week rally one of the strongest starts to the year in over 30 years – mostly due of course to one of the worst ends to the year in the three weeks ending 2018; the S&P 500 was up a further +2.54% on the week pushing the bounce since Christmas Eve above +10%. Also, on the back of wide-reaching optimism on the Sino-US trade negotiations and the Fed’s increasingly cautious tone and promise to be patient with further hikes, the Chinese yuan had its strongest week since 2005 with both CNH and CNY appreciating over +1.5%.
It’s still far from clear how persistent this risk appetite will be with a swathe of fourth quarter earnings ahead – many expected to be revised down – and the multifaceted political uncertainties ranging from Brexit to the US shutdown to far from resolved trade talks. Add to this a number of concerning data releases across Europe last week including notably weak industrial production numbers across Germany and France alongside further signs of economic slowdown in China and it’s likely that the gloomy outlook for the global economy is expected to persist for the months ahead.
US Treasury yields had declined with stock prices into the end of 2018 and continued to fall as equities bounced in the first couple of weeks of 2019 – adjusting to reflect the latest from the Fed. However, last week US 10-year Treasury yields rose 3 basis points to touch 2.7% again. Brent crude ended the week above $60 a barrel; after rallying $4.86 (9.3%) the previous week Brent continued to bounce a further $3.42 (6%) last week following the sharp decline ending 2018 and on comments out of Saudi Arabia that oil exports would fall in January and February to 7.2 and 7.1 million barrels per day respectively, down over a million from recent months in order to achieve oil market normalisation. Also last week, Saudi Arabia raised USD7.5bn with a dual tranche dollar denominated debt issue that attracted USD27bn in orders, despite international outcry in Q4’18 over the killing of the journalist Jamal Khashoggi. Seemingly, in the absence of punitive sanctions and with the prospect of greater index inclusion Saudi Arabia still remains on investor radar screens.
It’s a busy week ahead, after disappointing industrial production numbers last week across Europe we’ll see on Monday if the US figures follow suit along with trade balance data from both the US and China shedding further light on the impact of trade wars and slowing growth. Also the partial US government shutdown will become the longest in history with little sign of breaking the impasse. Focus on Tuesday will of course be on the UK’s Parliamentary vote on Brexit, also German 2018 GDP and France CPI data are released on Tuesday with UK and German inflation data published on Wednesday. OPEC are due to publish their monthly report on Thursday with the anticipated “Brexit Plan-B” deadline set for Friday likely to overshadow UK retail sales data with Japan industrial production and CPI data also released.