The Weekly Update

Last week, the Dow Jones Industrial Average was again up a full +3.1% on indications Trump may allow some concessions and extensions on both the international trade talks and border wall funding disputes; the former would otherwise revert to higher tariffs on the 1st March. The latter avoided another federal government shutdown over the weekend: but only through the Republican Senate agreeing to fund around a quarter of the border wall expense and Trump declaring a national emergency to divert funding for the rest. This move has been widely criticized and challenged by the American Civil Liberties Union.  News keeps calling it “fresh optimism”, but the months of hopeful statements from the Trump and Xi administrations could start to seem a little stale unless tangible progress towards a deal is observed soon. Markets are now hoping that the two presidents will meet in the coming weeks to, if not sign a deal, at least hammer-out some of the longstanding sticking points.

On the data front however, US SME confidence and retail sales data were notably weak; meanwhile, Germany was lucky to achieve 0% growth for Q4 2018 – thus avoiding a technical recession. US markets shrugged off the disappointing data with the S&P 500 up +2.5%, and the German Dax was up +3.6% on the back of German GDP growth not being 0.1% lower. Other reoccurring disappointments included: another Brexit defeat in Parliament for Theresa May as 66 Tories abstain, another week of corporate earnings forecasts being revised lower for 2019, and further signs and comments that the slowdown in the EU economy over the recent months has been ‘significant’.

Contrastingly, on 8th February Moody’s upgraded its Russian sovereign rating to investment grade.  The move takes the LT foreign currency rating to Baa3 (stable outlook) from Ba1 (positive outlook) and moves the rating in line with S&P; who upgraded the rating in February last year to BBB- and Fitch who has maintained an investment grade rating (currently BBB-) throughout the 2014 sanctions and lower oil price period. Moody’s stated the main driver for the upgrade ‘is Moody's conclusion that the sovereign's vulnerability to such shocks has indeed materially diminished and no longer constrains the rating to sub-investment grade. More specifically, the impact of likely new sanctions – which is the most likely source of such a shock in the coming months – could, in the rating agency's view, be contained without material damage to the country's credit profile.’

The week ahead is expected to start quietly for markets with Presidents’ Day in the US; on Tuesday we see the release of UK unemployment data and German ZEW economic sentiment; FOMC minutes are out on Wednesday along with Germany PPI and Eurozone consumer confidence; PMI across the Eurozone and US are released on Thursday; and on Friday Japan publish their CPI data.

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