15th April 2019 

Broadly speaking, global developed equity markets continued to push higher last week. The US once again led the way in terms of performance. Markets appeared buoyed by further signs of economic recovery, decent data out of China and decent corporate earnings. This week will be a good test of the strength of the economic recovery and the market rally. We have another round of Q1 corporate earnings and key data points out of the US, China and also the UK, alongside key corporate earnings. This week, the focus will be on earnings from top US banks and also big tech names such as IBM.

Last week

  • Developed equity markets pushed higher.
  • Emerging markets were weaker, dragged lower by Brazil.
  • Earnings season kicked off last week in the US, with JP Morgan and Wells Fargo both producing solid numbers.
  • The European Central Bank kept rates on hold.
  • China continued to show signs of stabilisation with very strong credit lending numbers.
  • The European Council granted PM May a second, longer extension of Article 50 to October 31st 2019.

This Week

  • There is lots of UK data due out this week, with unemployment numbers out today followed by inflation and retail sales numbers later in the week.
  • In the US, the focus will be on corporate earnings, with notable ones being the big banks early in the week (Goldman Sachs, Morgan Stanley and Bank of America), key tech players (Netflix and IBM) and key manufacturers such as Alcoa.
  • This combined with the banks on Friday will give a good early indicator of where we are.
  • We also have retail sales on Thursday along with industrial production data on Tuesday.

Last Week’s Highlights​

  • Equities in developed markets continued to grind higher last week. As has been the norm of late, US equity markets led the way higher. The main laggard for the week was Europe, which finished the week flat. Emerging markets were weaker than their developed cousins, with Brazil in particular having a tough week, down to the tune of 5%.
  • Earnings season kicked off last week in the US, with JP Morgan and Wells Fargo both beating analysts’ expectations with their numbers. Expectations are generally pretty low for this quarter, with analysts’ expecting a contraction in earnings of circa 4%. Disney also gave the market a big boost on Friday, rising by 11.5% as it released plans to offer a streaming entertainment service dubbed Disney Plus. The service is scheduled to roll out on November 12 at $6.99 per month. That’s well below the $13 monthly price tag for rival Netflix, whose stock fell 4.5% on the news.
  • US high yield was the best performing bond market last week, followed by US investment grade bonds. In the UK, yields on government bonds moved higher in the week, while US Treasuries were also slightly weaker. Emerging market bonds, both in local and hard currency terms were broadly flat on the week.
  • The European Central Bank (ECB) met last Wednesday and kept rates on hold (widely expected), but Mario Draghi gave markets a boost by saying that the ECB would remain accommodating due to slower growth – the Eurozone is expected to grow by around 1.1% this year. Draghi didn’t announce the new stimulus package (TLTRO3) but did say that details would “be communicated at one of the other forthcoming meetings.”
  • With a 12th April deadline looming, the European Council granted PM May a second, longer extension of Article 50. This extension now means that the UK has until 31 October to get a withdrawal agreement through Parliament. PM May has accepted the offer and this will require the UK to participate in this year’s European elections. However, May has indicated that she still aims to leave by May 22nd to avoid EU elections.
  • The US economy exhibited more green shoots and signs of strength last week. Jobless claims numbers fell to their lowest level since October 1969 (when the labour market was just 60% the size it is today); following a very strong payrolls report in the week prior. This data followed a core inflation print on Wednesday which showed slightly lower than expected growth of just 2% a year. This moderate data is supported by a dovish central bank, with the minutes from the Fed’s last meeting, which confirmed that a “majority of officials expect that the evolution of, and risks to, the economic outlook will likely warrant leaving the target range for the federal funds rate unchanged for the remainder of the year.”
  • China continued to show signs of stabilisation with very strong credit lending numbers which came out at the end of the week and gave equity markets a boost. Total bank lending in China rose a record 13.7% in the first quarter of 2019 as the government’s stimulus efforts begin to gain traction.

Asset Returns

Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source: Bloomberg.

US Jobless Claims at 50 Year Low.

Source: Psigma / Bloomberg

Rory McPherson
Head of Investment Strategy