View from the Front

Out with the old, in with the new…Chinese year. Although it may feel a little bit like groundhog day as US-China trade negotiations resume this week with senior officials from the US travelling to China in order to find some sort of compromise. News reports suggest that it is unlikely US President Donald Trump and Chinese President Xi Jinping are to meet prior to March 1st when the next set of tariffs are due to be implemented following the 90-day truce set by the two leaders. In any case expect any soundbites to come out of the current set of discussions to be highly market sensitive.

In what is a relatively quiet week in terms of economic data, arguably the highlight will be the Bank of England (BoE) meeting on Thursday, updating us on their first interest rate decision of 2019.

It's an action packed week in financial markets, with investors set to be entertained by a busy corporate, economic and political calendar.

The great and the good of the business world convene in Davos this week for their annual get-together in Switzerland. The theme for this year is the very pithy title of, “Globalisation 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution”. Some high-profile attendees have been forced to cancel given domestic political pressures on their home front. Donald Trump is contending with another week of the US government shutdown while Theresa May prepares for (another) week of high stakes in the soap opera that we call Brexit.

Equity markets have started the year like most New Year’s resolutions - in a positive and resolute fashion. Markets have been boosted by the promising start to US-China trade negotiations and a US Federal Reserve (Fed) that looks increasingly likely to slow down their approach to interest rate rises. That cheery mood is likely to be tested this week by the start of the fourth quarter earnings season in the US and a busy political calendar.

If you were hoping for a quiet start to the year, last week will have left you bitterly disappointed as some weak economic data complemented by heated US politics resulted in a volatile first few trading sessions of 2019.

As we reach the end of the year it is becoming increasingly likely that the much fabled ‘Santa Rally’ may not be joining financial markets this festive season. Risk sentiment amongst investors has taken a nose dive while the global political elite continue to find ways to unnerve their electorate. Unsurprisingly this backdrop has led to a particularly weak period for asset prices, both equities and bonds, with investors now questioning whether 2019 will be a profitable one.

Investors are waiting anxiously in hope for this year’s “Santa Rally” to arrive, with equity market rallies of late struggling to find legs. It’s difficult to know if this week will provide the tonic markets desire, with US-China trade tensions and the UK parliamentary vote likely to continue to weigh on investor sentiment. Whilst politics is likely to take the bulk of the headlines, it’s also a busy week on the economic front with China releasing a number of key economic indicators for November and the European Central Bank (ECB) holding its last monetary policy meeting of the year.

Federal Reserve (Fed) governor Jay Powell is scheduled to speak before Congress’s Joint Economic Committee on Wednesday. Considering the market-moving comments he made last week (more on that below), it is worth paying attention to see how he builds on them and whether the tone is as dovish.

A fairly quiet upcoming week for global economic data, naturally the same can’t be said for global politics in the current climate. The release of the German IFO business climate index this morning confirmed an economy that appears to be weakening, whether this is temporary remains to be seen. We will be looking for more detail to assess the state of the German economy when we receive both unemployment and inflation data for November on Thursday. The unemployment rate is expected to remain steady at 5.1% while inflation is expected to tick up marginally to 2.5% (year-on-year).