The Weekly Update

Risk-off assets including higher-grade bonds were favoured last week as US 10-year Treasury yields fell 13 basis points to 2.63% while US equities lost momentum: with the S&P 500 falling -2.2% after almost ten straight weeks of gains this year (with one -0.2% week in January). While the US Fed was busy receiving another string of criticism from President Trump the ECB was busy issuing some dovish guidance and detailing new TLTROs for September providing a boost to Italian debt markets. Broader negative sentiment could not be avoided with numerous downward revisions to global growth forecasts in addition to weak data from US manufacturing ISM and the Fed’s Beige Book release detailing the economic drag from the government shutdown.

It was also a busy week for China as it began its second session of the 13th National People's Congress, where policy and planning discussions will take place for 10 days setting the country's goals for 2019. When reviewing the government's work in 2018, Chinese Premier Li Keqiang said GDP grew by 6.6 percent, exceeding 90 trillion yuan, CPI rose to 2.1%, and the country's ‘three tough battles against poverty, pollution and major risks got off to a good start in 2018. This year China expects its GDP growth to be in the range of 6 to 6.5 percent, aiming to maintain a consumer inflation level of around 3 percent as well as creating more than 11 million new urban jobs. Still, February trade data showed a -21% drop year-on-year far below the -5% expected and alongside all the growth targets was a long list of stimulus measures.

In parallel with the ECB revising down its growth forecasts and all but promising there will be no rate hike in 2019 the Organisation for Economic Co-operation and Development (OECD) also cut its outlook for global economic growth: downgrading its 2019 forecast to just 3.3%. From 3.7% expected in May 2018 to 3.5% last November to just 3.3% now, it’s clear that the slowdown has been pervasive and remains persistent. Their growth expectation for 2020 was also revised lower from 3.5% to 3.4%. Larger and faster growing economies like China received only smaller revisions, thus requiring a number of acute and concentrated slowdowns elsewhere. With the 2019 forecasts for China, India and the US being lowered just 0.1% (to 6.2%, 7.2% and 2.6% respectively) that “elsewhere” is most evident in core Europe with both the powerhouse of Germany and struggling Italy having growth revised down around 1%. Germany was cut from 1.6% to now just 0.7% and Italy down from 0.9% to -0.2%. The UK too was revised down notably from 1.4% to 0.8% with the added caveat that a no-deal Brexit would turn this figure negative.

Today we have US retail sales and business inventories, Tuesday sees US CPI data and UK GDP estimates, trade balance and industrial production data, but focus will be on Parliament’s vote on the Brexit deal with further votes expected on Wednesday and Thursday. Also on Wednesday will be the UK’s Spring Budget, Eurozone industrial production Japan machine orders, and producer price data from both Japan and the US. On Thursday we have retail sales in China and the US, and China industrial production, CPI data across Germany and France, with Eurozone inflation data on Friday along with US industrial production data and  Michigan consumer sentiment and new home sales.

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