Whilst these two countries appear to be gaining momentum, Europe and Japan appear a little left behind so it was pleasing to see German industrial production rebounded faster than expected last month.
As global growth data has not been so bad, it is unsurprising that the spread between the 10 year bond yield and the 2 year bond yield widened. This means the yield curve is steepening and it is likely that positive economic data will beget a steeper yield curve.
Turning to the three market driving topics of trade, Chinese stimulus and Brexit; the risks now lie in things not getting done. This week the FT reported that a US-China trade deal is nearing completion after the two sides resolved several key sticking points and the news was received positively by equity markets. Additionally, China ramped up its purchases of US farm products, a gesture of good will during the trade discussions. However, there is still the risk of this deal not happening, causing markets to sell-off.
Similarly, whilst markets continue to see positive numbers coming out of China, the rebound in Chinese growth is not certain and investors may still lose faith that the fiscal and monetary stimulus will translate into higher economic growth.
It has been another busy week in the Brexit saga as Theresa May reached across the aisle to Jeremy Corbyn. If the two can reach an agreement then they should be able to whip enough MPs to pass a version of May’s Withdrawal Agreement. At the same time, May has sought to extend Article 50 again, which as you may recall is set to expire on the 12thApril. This came after the Commons voted in favour of a bill that will legally bind her into seek an extension past the 12thApril. Should the Lords pass the bill too, it would become law so May might be trying to get ahead of the curve here.
However, it appears that markets are still mindful of a ‘brexident’, where the UK accidentally leaves with a no deal, which importantly is still the default legal position. Therefore, whilst oscillating, sterling is little changed from this time last week.
The probabilities of Brexit’s outcome have not changed week on week. The authors assign a 20% probability to a ‘no deal’, 40% to some version of May’s deal and 40% to other outcomes such as a second referendum or no Brexit at all.
A few weeks ago it became more important to consider the glut of ‘unicorn’ tech companies planning IPOs (Initial Public Offering) this year. Lyft, the rival to Uber, was the first to pull the trigger and despite roaring higher the day its shares listed, this week the share price fell below the offer price. Whilst this is not awful – almost immediately after its IPO, Facebook’s shares fell below the offer price and actually lost some 50% before rallying nearly 900% to where they are now – the Lyft share price is worth watching as more tech companies are coming to the market. The question is: is there enough investor demand for all this new supply.