The signing of the US-China trade deal on Wednesday helped to strike a positive tone to the week: The S&P 500 ended the week at another new high (+2% wow) also helped by a generally upbeat start to the earnings season. The UST 10 year yield was unchanged on the week at 1.82% although the UST yield curve steepened from Wednesday into Friday’s close as the US Treasury announced its intention to issue 20 year bonds in the first half of this year. Fixed income markets were supported generally by ample liquidity looking for a home: the Spanish and Italian bonds sales in the middle of the week drew record demand as Italy attracted €47bn of orders for a €7bn 30 year bond and Span attracted €53bn of orders for a €10bn 10 year bond.
The signing of the US-China trade deal coincided with the US Department of the Treasury issuing its semiannual Report on the Macroeconomic and Foreign exchange Policies of Major Trading Partners of the United States: China is no longer designated a currency manipulator and has instead been moved to the monitoring list. The renminbi gained 0.75% (CNH total return over the week). There was also a slew of economic data releases for China with 2019 GDP coming in at 6.1% although there were some signs of improvement amongst the other data releases e.g. December industrial production exceeded expectations growing 6.9% yoy and retail sales grew 8% yoy.
On the US economic data front, the US CPI and PPI figures continued to point to a benign inflation backdrop: December CPI grew 2.3% yoy and PPI grew 1.3% yoy. December housing starts attracted attention posting strong gains of 1.608m versus expectations of 1.38m, although the housing permit data came in below expectations. Other data releases included the January University of Michigan Sentiment indicator, which came in at 99.1 compared to 99.3 in December, and December retail sales which were in line with expectations.
Elsewhere, expectations built for a BoE rate cut later this month following the weak inflation data for December which hit a 3 year low with the CPI up 1.3% yoy and some disappointing economic data. In Russia, President Putin announced in his State of the Nation address a number of proposed constitutional changes to restructure the institutional framework ahead of the end of Putin’s Presidential term in 2024. The proposals include measures to boost some of the parliament’s powers and limit future Presidents terms to two terms in office. The existing government resigned and Mikhail Mishustin, the former head of the federal tax service, has been appointed as the new prime minister.
The week ahead looks to be a busy one with the World Economic Forum due to kick-off in Davos, while the US is on holiday on Monday for Martin Luther King Jr. Day. Trump’s impeachment trial is due to start on Tuesday in the Senate. The US earnings season continues with Netflix, Johnson & Johnson, Intel and IBM among the companies due to report. It is also a busy week for Central Bank meetings with the BoJ on Tuesday, Bank of Canada on Wednesday and ECB on Thursday. Key economic data points from the US include the Chicago Fed National Activity Index, Existing home sales and the Markit PMIs. In Europe, the German ZEW Survey for January will be closely watched as will the slew of PMI data due later in the week.