The Weekly Update

Despite last week being the busiest for corporate earnings – with 41% of S&P companies reporting fourth quarter results – it was again the Fed that moved global stock and bond markets the most. The S&P 500 resumed its rally, up a further +1.6%, whilst the Fed’s new dovish tone was also a boost to emerging markets with the MSCI EM Index up +1.7%. US Treasuries also rallied on the Fed announcement with 10-year yields falling 7 basis points. Passing month end on Thursday, the S&P was up +7.9% YTD making it the best performing January in three decades; this was despite flags over growth in China not only from official statistics like weak industrial profits but also from a number of corporate earnings misses (like Caterpillar’s latest) blaming “lower demand” from China as the main reason for the shortfall.

As expected, the Fed left interest rates unchanged at its January meeting and the accompanying statement was viewed as having a dovish tilt as it pointed to a pause in the tightening cycle and prompted market debate whether the US rate-hike cycle has peaked. Jerome Powell also adopted a dovish tone in the press conference acknowledging ‘the case for raising rates has weakened somewhat’ and inflation risks ‘appear to have diminished’.  He also noted ‘our policy rate is now in the range of the committee's estimates of neutral’ and ‘we think our policy stance is appropriate’. US equity markets rallied in response, Treasury yields edged lower and the US dollar index (DXY) weakened.

The FOMC also issued a statement on the balance sheet normalisation noting ‘The Committee continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy.’ However, they emphasised a flexible approach to balance sheet normalisation and ‘the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet,’ if it were required. The shift to a ‘patient’ stance by the Fed should further support US Treasuries and high grade bonds which have rallied strongly over the past 3 months with 10 year yields falling from 3.24% on 8th November down to 2.68% currently.

Over in Europe, Italy data showed it had entered into recession in the second half of 2018 as it also posted weak manufacturing PMI of 47.8 in stark contrast to the impending “economic miracle” purported by its populist leaders; Brexit negotiators on both sides paid their tribute to Groundhog Day by spouting the same demands as they have for countless weeks; meanwhile, both China and US continue to espouse optimism and progress in trade talks with scant details other than China buying (a couple of million) tonnes of soybeans from the US.

Looking to the economic data expected for the week ahead: on Tuesday we have service PMI data across the EU, UK and US as well as Eurozone retail sales with German factory orders on Wednesday. Thursday sees interest rate decisions from the Bank of England (with its inflation report) and Reserve Bank of India as well as a more closely watched Germany industrial production reading and France trade balance data; with France industrial production and Germany trade balance data on Friday.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.