Insight Multi-Asset update – week beginning 20 January, 2020


Market and economic review

The signing of the ‘phase one’ deal between the US and China, constructive data releases and positive earnings stories for US banks buoyed global equities last week. Government bond yields were broadly flat, with the exception of UK gilts which tightened meaningfully owing to members of the Monetary Policy Committee (MPC) guiding towards an interest rate cut at the MPC meeting towards the end of this month.

Whilst on central bank policy, both Turkey and South Africa delivered a rate cut last week, with the latter surprising the market, and South Korea kept their rate the same in line with market expectations.

Data from China strikes a more positive tone, and secondary US survey data makes the US PMIs a close watch

The most significant data release came from China towards the end of the week, where we saw both stronger industrial production numbers (6.9% year-on-year vs an expected 5.9) and retail sales (8.0%, slightly above the expected 7.9%). These data provide reassurance for our view of stabilisation in Chinese growth. The year-on-year GDP also printed at 6% which was in line with expectations. In the US we also received a few data releases, which again support our view of growth improvement. Retail sales printed 0.7% month-on-month vs an expectation of 0.5% while the Philadelphia Fed Business Outlook was a strong beat. It will be interesting to monitor other regional data releases ahead of PMI and ISM prints as the size of current divergence is high relative to history. Last week’s data docket adds to our growing confidence that policy action across the globe in 2019 is having the desired growth impact and that the worst of the manufacturing slowdown seems to be in the rear-view mirror.

US earnings season kicked off with banks reporting strong results, but share-price reaction was muted

US earnings season kicked off in earnest last week with 8% of S&P 500 Index market capitalisation reporting. The expected EPS growth rate of -1.5% marks a continuation of the theme of sluggish profit growth seen in 2019. Revenue expectations remain positive at 3%, which highlights how margin pressures continue to drag on US corporate profitability. This week’s reporting schedule was dominated by financials, and in particular the banking sector. In aggregate US bank earnings were solid, with most banks beating analyst estimates thanks to big increases in trading revenue and strength in consumer-facing divisions. The latter provides some bottom-up confirmation on the health of the US consumer. Perhaps less reassuring was the share-price reaction to positive results, which was muted relative to how big the surprise was. This is something we will keep a close eye on over the next few weeks of the reporting season.

At long last, a ‘phase one’ deal between the US and China has been signed

Wednesday saw the signing of the phase one deal between the US and China, but there were no surprises relative to market expectations so price reaction was relatively muted. We did find out more detail about what the deal entails, with it being kept mostly under wraps until now. China has now committed to spend $200bn on American goods in order to bridge the trade imbalance, whilst also cracking down on intellectual property theft. On the former, CNBC reported that this commitment covers the following two years with a breakdown including manufactured goods ($77.7bn), energy goods ($52.4bn), services ($37.9bn) and agricultural goods of $32bn.

Whilst on the US, another snippet we heard last week that helped propel markets to fresh highs on Thursday was from Larry Kudlow, economic advisor to the White House, who hinted at a further tax cut plan later this northern hemisphere summer. However, this would require bipartisan approval and as such, may be challenging to implement. 


The highlight for data over the coming week is likely to be the release of the preliminary January PMIs on Friday, which should provide an insight to the global growth backdrop heading into 2020. We will see releases from Japan, Germany, France, the UK, US and the wider Eurozone.

 The US earnings season remains a key focus with a further 11% of S&P 500 Index constituents reporting. As we discussed above, share-price reaction has been muted so far this season, which is something we are keeping a close eye on. 

The central bank docket includes policy decisions from the European Central Bank, the Bank of Japan and the Bank of Canada, all of which are expected to keep rates unchanged. 

The US market is shut on Monday and the Chinese and Korean markets will be shut on Friday for the start of the Chinese and Korean New Year Holidays, respectively.

By Adan Kibble

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