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Weekly Market Review - 11 February 2019

The big news this week was that EU agreed to allow the UK to extend the Brexit deadline to the 31st…
Strong numbers coming out from manufacturing and service surveys in the US and China helped push…
Whilst global equity markets are flat on the week, they are up year-to-date 12-13%. However, the big…
Global equity markets are up roughly one per cent this week. Volatility is still low and ten year US…
It has been a tough week for equity markets, which were down some 2%. Bonds on the other hand helped…
Those who follow this commentary know the authors believe that the three main market driving topics…

It looks like global markets have truly entered the “show me” phase of the rally. In summary analysts believe that markets are close to fair value and hence positive things have to happen before markets can move significantly higher.

In particular, market participants are on the look-out for news on the three main topics which they currently believe are driving markets namely, the potential for a trade war, Chinese data and Brexit.

Regarding trade President Trump did say that he will not meet Chinese President Xi Jinping before a 1st March deadline to avert new U.S. tariffs on Chinese goods. This is bad news as many had hoped that they would meet prior to 1st March and markets sold off on Thursday for this reason. Next week Robert Lighthizer, the US trade representative, and Steven Mnuchin, the US Treasury secretary, are scheduled to visit Beijing for a new round of talks. If no deal is reached by the night of 1st March, tariffs on about $200bn worth of Chinese exports to the US will increase from 10 per cent to 25 per cent, which could inflict further damage on Chinese manufacturers who produce the products, and US businesses and consumers who purchase them. So although a deal could still happen before 1st March, events this week put a lower probability on that happening.


Turning to Chinese data analysts noted that China was on holiday for most of the week and hence the markets did not get much of a glimpse into how the economy is developing there. Finally, Brexit has resulted in a battle of words this week but no real movement from either the UK of the EU.

Away from these three main topics it is worth noting that despite the month-long government shutdown, US economic news has recently delivered a string of upside surprises. Both the manufacturing data and consumer sentiment rebounded in January and last week’s jobs report was another blockbuster. This has contributed to a recent divergence in data between the US and the rest of the world – so the market is seeing strong data in the US and weak data elsewhere.

Turning to the earnings front analysts noted that with roughly half the major US companies having reported so far some 50% have beaten earnings expectations significantly but this is roughly in line with the long term average so did not really move the markets.

So in summary it has been a quiet week but the trade mood music was disappointing.