The Weekly Update

Both stocks and bonds were on the front foot last week after US core inflation data came in up just 0.1% month-on-month, further relieving any lingering fears of immediate runaway inflation. The year-on-year core figure came in at 2.1% (0.1% below expectations and the previous month’s reading) while real average hourly earnings were up 1.9% yoy. The S&P 500 ended the week up 2.9% while US 10-year Treasury yields rallied 4 basis points to 2.59% - pushing below 2.6% for the second time this year (after flirting with such low yields for a day early in January) but this time falling yields come even as USD 24bln in supply was swallowed up by a bond hungry market. Indeed duration buyers were seen in the long dates as some frustrated investors are thought to have bitten the bullet and need to get some maturity risk on board ahead of this coming week’s FOMC meeting.

In Europe last week, the EU announced it was holding back the next phase of Greece’s debt relief as the government had so far failed to fully implement reforms that it had promised during the huge bailout that ended in August last year. As part of the debt relief scheme, Greece was due to receive approximately  EUR 1bn, however, according to the EU, the Greek government has so far not completed new housing insolvency rules for those threatened families with foreclosure on their homes. Pierre Moscovici, the EU Economics Affairs Commissioner said ‘It's too early to decide formally on the disbursement today’ adding ‘The signal given to the markets is decisive, the message of today's Eurogroup will be and must be positive’.

In the US, the summit between President Trump and Xi was pushed back while trade negotiations continue, but Trump said the negotiations are ‘going incredibly well’ while China’s state news agency pointed to ‘substantive progress’: the market is still expecting a deal to resolve the impasse. However, the US hard-line approach to trade and tariffs looks likely to continue with the US likely turning their attention to other trading partners.

Meanwhile the three days of Brexit votes and parliamentary predicament evolved mostly as expected with MPs voting against May’s deal and no-deal and for an extension. But the amendments that stood and fell (some by the smallest of margins) were perhaps just as important. 312 MPs voting for and 314 against parliament taking control was almost an ironic echo of the Maastricht debates, which was the last time a Speaker had a casting vote. Had the (observed fist-bumping) Tory Whips persuaded just one less MP this would have happened; two less and not even Speaker John Bercow could have saved what’s left of May’s governing authority. Still the amendment tabler Hilary Benn has every intention of trying again. But with time ever more in May’s hands it is expected that she will try to win over the DUP and then some of the ERG with further concessions upon her already weak position: to force the scales for a third meaningful vote in her favour (if you could even call it that). But MPs that have described the incremental advances in the EU-UK deal akin to “polishing poo” won’t easily surrender to having it force fed to them. From the opposite angle, Corbyn may be the one to watch having more to lose than most if May gets her deal and much to gain if he can drive through whichever one of the agendas he has supported throughout this ordeal. Only time will tell, as it stands, with 11 days and counting left on the clock.

Data for the week ahead includes: Eurozone trade balance and Japan industrial production on Monday; UK unemployment, Germany ZEW economic sentiment, US factory orders on Tuesday, as well as a possible 3rd meaningful Brexit vote on May’s deal; Wednesday focus will be on central banks’ data with the Fed interest rate decision and BoJ minutes, also on Wednesday is Germany and UK inflation data; The BoE’s rate decision appears on Thursday along with UK retail sales and PSNB, and Eurozone consumer confidence; lastly on Friday we have CPI from Japan and Canada and Markit PMIs throughout the Eurozone.

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