The Weekly Update

Another week of mixed data, another positive week for equities with the S&P 500 up 0.62% whilst US 10-year Treasury yields held around 2.65%. The week began with a cloud over EU growth prospects with Francois Villeroy de Galhau, an ECB Council member warning that the slowdown in the EU economy over the recent months has been ‘significant’, to the extent that if it becomes clear it’s not a temporary blip, the ECB will have to change its forward guidance. Furthermore, German Purchasing Managers Index (PMI) for manufacturing fell to a 74 month low at 47.6 from expectations of 49.8. Order books showed the steepest fall for 6.5 years amid a further sharp drop in exports, although the services element of the index was higher which helped the overall composite index beat expectations. The outlook for manufacturing is poor given trade frictions and growing competitive pressures within Europe surveyed businesses reported. However, markets in Europe broadly held up with some counterbalancing news including confirmations from the ECB of its plans to discuss new targeted longer-term refinancing operations (TLTROs).

Over in the US, notably weak data from the Philly Fed was compounded with PMI and durable goods misses. Also the minutes from the last pivotal FOMC meeting were released shedding light on the reasons why they now favour a “patient” approach: citing worsening financial conditions and growth prospects alongside allayed fears of runaway inflation as a near-term risk. New York Fed President Williams talked of not foreseeing further hikes whilst growth and inflation weren’t accelerating sharply but with the caveat that the current stance “is not a commitment, or a promise, or in any way a sense that we know for sure that’s what we are going to do” going on to say “we are actually saying pretty clearly this is how we see it now based on our positive, pretty optimistic view of the economy, and we will change that as needed.”

Ahead we have the Chicago Fed National Activity Index and Dallas Fed Manufacturing Index on Monday, German and French consumer confidence data on Tuesday along with Jerome Powell’s testimony running through till Wednesday when we also see EU business confidence and US factory orders. Thursday and Friday sees various PMIs across China, Europe and the US along with Eurozone CPI and German unemployment data. Throughout the week expect further news out of negotiations between the US and China as the 1st March deadline approaches, the US and North Korea with a summit between Trump and Kim Jong-um this Wednesday, and between the UK and EU despite May delaying a Parliamentary “meaningful vote” until as late as the 12th March.

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