Michael Ford

Summary

• The price of oil rose through the week as the US exited the nuclear deal with Iran. The potential inflation impact of this helped push up rates and the US dollar, and emerging market assets suffered.
• A weaker-than-expected core US inflation outturn then prompted these moves to be partially reversed.
• We added a couple of new defensive option trades to further improve portfolio diversification.
• Next week, the focus should fall on key Chinese activity data, comments from Federal Open Market Committee (FOMC) members and labour market data out of the UK and Australia.

Strategy review

We added a couple of new defensive option trades to further improve diversification in our portfolios.

Market and economic review

Geopolitics – US and China no closer to a new trade agreement and the US withdraws from the Iran nuclear deal

Financial markets started the week with news that trade talks between China and the US had ended without agreement on how to move forward. Possible solutions looked harder to reach when data revealed Chinese exports had risen 12.9% in April – helping the trade surplus rise to $28.8bn (around $1bn more than analysts expected). There is an increasing focus on the potential disruption to tech company supply lines. If this was to materialise then this could have a material impact on equity markets due to the size of the technology sector.

With the trade issues rumbling on in the background, President Trump decided to ramp up the geopolitics on Tuesday by pulling out of the deal that President Obama struck with Iran, whereby economic sanctions have been eased in return for the shuttering of Iran’s nuclear capabilities. The Trump administration plans to re-impose sanctions in the nuclear sphere, and to introduce “the highest level of economic sanctions”. It will also try to punish those countries that don’t make significant cuts in their purchases of Iranian oil. All of this will be imposed after a wind-down period so there is time for proposals to be watered down or for US-designed amendments to the agreement to be made (as the other signatories to the agreement would like). But, at this stage, that looks very unlikely. With US oil inventories also falling more than expected, the oil price rose through the week, reaching its highest level since 2014 (at around $78/bbl).

Equity markets rally despite geopolitical uncertainty and emerging market stress

Equities generally rallied through the week despite the increase in geopolitical uncertainty. The oil price rise helped energy stocks to outperform and fears of a potential global slowdown reduced somewhat following a reasonably good set of purchasing managers’ surveys.

US bond yields and the dollar rose in the early part of the week due to concerns over the possible inflationary impact of higher oil prices. A weaker-than-expected US inflation number on Thursday then saw most of those increases reversed. Having flirted with the 3% level in the middle of the week, the 10-year US bond yield was more or less at its start-of-week level on Friday morning (UK time).

The initial strength of the dollar had a large negative effect on emerging market assets – with many bond and currency indices hitting the lowest levels since just after the election of President Trump. Countries with high dollar-denominated debt suffered most – with Argentina ultimately having to ask the IMF for help to deal with its twin inflation and debt problem (having already raised interest rates to 40%), and Turkey having to promise to introduce measures that will ease the pressure on its exchange rate and interest rates. But, as the dollar eased back after the US inflation surprise, all of the major asset price indices returned to start-of-week levels.

US inflation disappoints once again, easing the pressure for rate rises

Core US CPI came in at a lower-than-expected 2.1% (unchanged from the previous month). As usual, analysts who were the wrong side of the number pointed to price reductions they say won’t be sustained or repeated to justify their more bearish views (falls in used car and airfare prices this time round). But the fact remains that wages and inflation continue to come in lower than expected despite low unemployment and the output gap being closed.

Ahead of the US inflation numbers, the UK Monetary Policy Committee (MPC) announced it was keeping interest rates unchanged. Further rate hikes are still projected by the Committee (three 25bp hikes by 2021), but the inflation outlook has been adjusted to account for the fact that the currency effects on inflation are unwinding more quickly than it expected. Notable rate bears – Saunders and McCafferty – were the only members of the Committee to vote for a hike this time round.

Outlook

Next week sees the release of key China data on sales, production and investment. The focus here will probably be on the production numbers, with markets looking for any signs of a further slowdown (remember a slight drop in the rate of production growth last time round took the gloss off a reasonable GDP outturn).

In the US, it’s a fairly light data week, with regional manufacturing surveys, retail sales and some housing stats released. The sales number should help determine how consumption is shaping up in the post-tax-cut environment. A number of Federal Open Market Committee (FOMC) members will be speaking. Most are expected to reiterate the point that Raphael Bostic, President of the Federal Reserve Bank of Atlanta, made this week that inflation should overshoot the FOMC’s target by a small amount this year, but given the symmetry of the target, that won’t mean a more aggressive path for rates. Nominees for the Federal Reserve Board of Governors, Richard Clarida and Michelle Bowman, will testify before the Senate.

Away from the US, the minutes of the May meeting of the Reserve Bank of Australia (RBA) will be released. We expect little in the way of news from these. Indeed, the labour market data that is also released next week should be much more instructive. Last time round, full-time employment was disappointing. We believe consistent gains in this area will be needed before there is any further change to the RBA policy rate.

In Europe, the ZEW survey will give markets another steer on just how quickly, or otherwise, growth is slowing. In the UK, data from the labour market – earnings growth in particular – should provide clarity on when the MPC might next change its policy rate.

By Michael Ford, Portfolio Manager in the Multi-Asset Group

The post Global macro-economic commentary from Insight Investment for the week ahead (week commencing 14 May 2018) appeared first on AdviserVoice.

Michael Ford

Summary

• It has been a very positive earnings season in the US so far, although share price reaction during the week was mixed.
• Economic data released during the week was positive in the US, while showing signs of stabilisation in Europe.
• Next week is a busy week for data, with inflation and labour market releases the key focus.

Strategy review

A gain in our directional equity strategies was offset by a loss in our fixed income component, while real asset strategies and total return strategies (TRS) were flat.

Market and economic review

US earnings strong while price reaction mixed

It was a busy week for US earnings with 40% of market cap reporting. At the headline level it has been a very positive earnings season so far with EPS growth now standing at 23% versus pre-season expectations for 17%. Even after adjusting for the impact of tax reform (approximately +7%), this represents an acceleration from last year’s growth of 12%. The proportion of companies beating expectations has also been high, currently standing at 80%, however market reaction has been mixed to say the least. This is perhaps best illustrated by Caterpillar, which is generally viewed as a proxy for global growth. The firm beat expectations and raised guidance for 2018, and the share price rose 4% on initial release of the results. However during a call with executives, the statement that this quarter was a “high watermark for the year” caused a quick shift in sentiment. The stock fell to close down -6%. Contagion spread on Tuesday to other industrial names, with the sector falling -2.8% and dragging the wider US market down with it.

That being said, there were more positive reactions in the second half of the week with Facebook and Amazon both gaining 9% and 8% respectively on strong earnings and revenue beats. The net result was that the S&P 500 Index ended the week flat after trading in a 3% range, providing further evidence that we have moved into a higher volatility regime. This type of trading environment is particularly attractive for our TRS component, and we continue to add selectively when the volatility dynamic provides opportunities.

Economic data was positive in the US, while showing signs of stabilisation in Europe

US data released this week has remained resilient, subduing concerns about a potential rollover in growth. The April provisional PMIs were above expectations, with the headline composite index increasing to 54.8 from 54.2. US consumer confidence also bounced in April at 128.7 (compared with 127 expected), keeping it close to cycle highs, while new home sales rebounded 4% in March (compared with 1.9% expected) and house price inflation rose in February (+6.8% year-on-year). The US GDP print for Q1 was 2.3% (annualised), representing a decent beat on expectations, although this does illustrate a cooling down from Q4 2-17 growth of 2.9%.

Data released in Europe showed signs of stabilisation. Provisional PMIs remain in expansionary territory with some signs of moderation from earlier in the year. The composite print of 55.2 for April was unchanged relative to March, but a small beat on the consensus estimate of 54.8. The German IFO survey continued to slide from its record highs, the headline business climate index fell to 102.1 from 103.2 in March and below the consensus of 102.8.

Treasuries break through 3%; USD fights back

In the US, the 10-year treasury yield edged over the psychological 3% level for the first time since January 2014 (having broken out of its recent range last week), before modestly retracing. US bonds notably underperformed their developed market peers. A lot of market commentary has been focused on a yield level where higher rates will become a negative drag for equities. However we believe that more important factors are both the rate of change in yields and the reason behind any increase. The Federal Reserve (Fed) is hiking due to a growing economy, while inflation remains benign, and yield moves thus far have been gradual, so we see no imminent concern for equity markets. The trade-weighted US dollar (USD) increased for the second week in a row (+1.5% on the week), with emerging market currencies the hardest hit.

ECB and BOJ provide little new information

There was little anticipation ahead of central bank meetings this week and they certainly lived up to this (lack of) hype. In Europe, the European Central Bank (ECB) meeting offered little insight as to the likely path of monetary policy for the second half of the year. ECB President Mario Draghi appeared to play down concerns related to recent disappointments in economic indicators, emphasising that data still remains historically strong. Having increased in line with US treasuries earlier in the week, bund yields fell following the meeting to end the week modestly lower. The Bank of Japan (BoJ) also met where the vote remained at 8-1 to keep rates unchanged, with Mr Kataoka remaining the lone dissenter.

Outlook

Busy week for data, with inflation and labour market releases the key focus

It is a busy week for US data starting on Monday with the Fed’s preferred measure for inflation, the PCE core and deflator readings, which are expected to be boosted by base effects. The April ISM manufacturing released on Tuesday is a particularly important indicator for growth momentum and the expected reading of 58.5 would indicate an economy still in a strong expansionary stage of the economic cycle. The Fed meet on Wednesday, although we expect that this will be a non-event given market pricing on the probability of a hike is only at 5%, and there will be no press conference by Jerome Powell. Of more importance for bond markets on that day will likely be the US Treasury announcement of debt issuance, where heavy supply is expected. Finally, on Friday we have the April employment report where consensus expects a 185k nonfarm payroll print and average hourly earnings at +0.2% month-on-month.

It is also busy in Europe where on Wednesday we get the preliminary reading for Q1 GDP for the euro area. This will be a key focus for the market given the recent softness in European data, however the number may be distorted due to weather. Consensus is expecting +0.4% year-on-year growth. We also get the April report for euro area CPI on Thursday with consensus expecting a +0.9% year-on-year print for the core, having held at +1.0% year-on-year for the last three months. In Asia the most significant releases will be the China PMIs (both official and Caixin), which are both are expected to nudge down slightly from last month.

Finally, we expect the earnings season to remain a key driver for equity markets. In the US, around 15% of market cap is reporting, with Apple the standout on Tuesday. There are also 55 Stoxx 600 companies reporting in Europe, where results so far have been much softer than in the US.

By Michael Ford, Portfolio Manager, Multi-Asset Strategy Group

The post Global macroeconomic commentary for the week ahead (week beginning 30 April 2018) appeared first on AdviserVoice.

Michael Ford

Summary

It has been another volatile week for equity markets, with many indices down 4%.

The Federal Open Market Committee (FOMC) raised its policy rate band by 25bp as expected, but the move was seen as a “dovish hike”.

FOMC news was overshadowed by an escalation of the US-China trade dispute, and the fear that this would widen.

Next week attention will remain on trade, but will also move to Federal Reserve (Fed) speakers and global inflation releases.

Market and economic review

Trade wars and policy decisions: FOMC not as hawkish as expected, trade dispute with China escalates

We started the week with equity markets a little nervous ahead of the Federal Open Market Committee (FOMC) rate decision, and still worrying about the potential for a widespread trade war to materialise. UK equities had a notably tough start, with the announcement that a transition agreement had been reached with the European Union that would delay Brexit by 21 months. It was also announced that a large part of the exit treaty had been settled. While this was positive news for the UK economy, and therefore the currency, the resulting rally in sterling hurt UK risk assets. The FTSE 100 Index fell over 1% in response to the news.

As we approached the close of business UK time on Monday, the US equity market sold off sharply, as tech stock prices fell dramatically in response to allegations that Facebook had misused users’ personal details (most significantly to help the Trump election campaign). Around $37bn was wiped off the value of the stock. Nervousness generated by this appears to have spread to the wider market, with the S&P 500 Index closing down almost 1.5% on the day. This weakness fed through into Asian markets in the following session.

With that as a backdrop, markets went into the FOMC announcement concerned that Jay Powell would use his first meeting as Chair to send a more hawkish rate message to markets. In the event, the policy rate band was raised 25bp as expected, but the overall impact of the accompanying comments and statement was viewed as slightly dovish. The Committee still expects to raise rates a total of three times this year (though it was a close run thing versus four hikes). An additional hike has been pencilled in for 2019, but markets appear to think that was offset by the fact that the Chair said the FOMC wanted to take the “middle ground”; mentioned the flatness of the Phillips Curve with respect to low wage growth; and said there was no sense that inflation was on the cusp of moving higher.

Markets also took the view that the FOMC continued to see risks to its forecast as roughly balanced, and that it was relaxed about small overshoots of its core inflation target in 2019 and 2020 as indicative of a more-dovish-than-feared outlook (some thought the removal of the word “roughly” would indicate more hawkishness). Fixed income and currency markets reacted as expected on that view, but equities didn’t rally. Asian markets reacted similarly in the following session – apparently reflecting nervousness over a likely escalating trade war in light of Trump’s decision to impose more trade restrictions on China (and China’s threat to respond in kind).

On Thursday the details of those restrictions – 25% tariffs on around $60bn of US imports from China, plus a plan to make it harder for China to buy into key US corporates – were made clear. These, plus China’s response – restrictions on 128 products/$3bn of imports from the US – plus a threat that they would continue to escalate and could hold out longer than the US in any spiralling trade war, spooked markets significantly. Add to this the news that the US would be making a complaint to the World Trade Organisation over China’s technology licencing rules, and, that a known foreign policy hawk had become the new National Security Advisor, and that was enough to see the S&P 500 Index close down 2.5%. Larger falls were seen in the following Asian session across a number of bourses as this story emerged and developed. The Nikkei 225 Index was worst affected, suffering a 4.5% drawdown as the Japanese yen was bid up for its perceived safe haven value. Time will tell how this all ultimately plays out. There appear to be a number of high ranking Republicans and corporate leaders who are against the measures. In the normal course of events, that would probably be enough to at least soften any proposed measures. But, with the current President, who knows?

The Bank of England leaves rates unchanged but expected to raise rates in May

The Bank of England (BOE) left the bank rate at 0.5%, as was widely expected. Financial markets continue to expect the BOE to raise rates by 25bp in May. At the time of writing, early Friday morning UK time, financial markets think there is a 20% chance of a hike in April, a 67% probability of an increase in May, and a 75% chance of a rise in June. With the impact of a weaker exchange rate on inflation starting to drop out of the key inflation metrics, we continue to think there is less need for a rate hike than both the Bank and markets believe.

Data: moderating growth with limited inflationary pressures

The usual wide mix of data was released from around the globe over the week. Fairly obviously, not all of this had a consistent theme, but, if we had to draw one out, it would be one of moderating growth with limited inflationary pressures. On the growth front, preliminary purchasing manager’s indices in Japan, Germany, and France were all down and lower-than-expected. In Germany, key balances in the ZEW index and IFO surveys fell. On the price front, German producer price inflation was down and lower-than-expected (at 1.8%, from 2.1%), as were UK producer price and consumer price inflation (CPI). The UK labour market release was fairly firm, but core earnings growth edged up only slightly to 2.6%.

Outlook

A fairly light week: Fed speakers and PCE inflation the highlights

The key focus next week should be whether or not there are any developments in the fledgling US-China trade dispute. At this stage, where “opening statements” have just been made, it seems unlikely there will be a significant reversal of positions. On the data front, after the excitement surrounding the FOMC rate decision and new dot plot, we have the “calm after the storm”. There is little in the way of key data released around the globe. In the US, regional Fed surveys and the personal consumption expenditures inflation numbers for February are the highlights – as are speeches by FOMC members Dudley, Mester, Quarles, Bostic and Harker. Comments made could provide more clarity on where the FOMC currently sits with respect to its rate view – though the usual mix of opinion seems more likely to us. In Europe, provisional CPIs for March will be released at the end of the week. We expect these to continue to point to limited inflationary pressure. In the UK, the highlight is probably the CBI distributive trades survey that will give the latest steer on conditions on the high street and the ongoing impact of online shopping on more traditional retailers.

By Michael Ford, portfolio manager in the multi-asset strategy group

The post Global macroeconomic update on the week ahead – week beginning 26 March appeared first on AdviserVoice.

Michael Ford

Summary

• Next week, attention will focus on the new Federal Reserve Chair Jerome Powell’s first semi-annual monetary policy testimony to Congress.

Strategy review

Spike in volatility provides attractive opportunity

Markets are re-calibrating to both an adjustment to a higher volatility environment and to a higher risk premium in the rates curve. This is occurring against a backdrop of strong economic growth and, while inflation should move higher, it is still below central banks’ targets. While volatility shocks are by their nature difficult to predict, they do typically lift risk premia to attractive levels in the near term as markets become significantly more risk averse.

Market and economic review

Federal Open Market Committee: statement says “further gradual policy firming would be appropriate”

On Wednesday, minutes from the Federal Open Market Committee (FOMC) January meeting said “a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate”. This statement was initially taken as an indication that the Fed might raise rates quicker than previously estimated, causing US 10-year yields to rise to 2.95%. Since then, yields have fallen back to levels seen at the end of last week. We note the Fed’s Kashkari said “I think ‘further’ is intended to say continuing the current path that we’re on” and “Wall Street overreacts to everything”.

Equity markets: range trade after last week’s gains

After equities troughed on 8 February, there has been a strong rebound. Last week, the S&P 500 Index posted the strongest gain in over five years. This week equities have been very choppy but have range traded. While there has undoubtedly been a lifting of both volatility and yields, the overall outlook appears supportive of risk assets in the medium term. The US dollar strengthened over the week, but this is only a partial reversal of the long-term downtrend.

Data: US provisional PMIs above expectations, European provisional PMIs disappoint but remain supportive

This week we had the provisional PMIs for the key economies. The US manufacturing PMI at 55.9 was above expectations, while the eurozone PMI composite at 57.5 was below expectations. The fact that PMIs remain at solid levels is supportive of our view that risk assets should perform well over the medium term as the recent upswing continues, but at a slower pace.

Brexit: UK wants longer transition and “Canada plus plus plus” as Labour says it wants to stay in a customs union

On Wednesday a leaked document revealed the British government wants the transition period to last longer than the EU’s 21-month limit. On Thursday a UK cabinet meeting decided on the government’s plan on the future relationship with Europe which has been branded “Canada plus plus plus”. More details are expected in Theresa May’s speech on 2 March. Previous statements from the EU indicated they would reject any attempt to “pick and choose” aspects of the single market. Attempts for a hard Brexit could suffer a setback as Jeremy Corbyn has said the UK will “have to have a customs union” with the EU after leaving the bloc.

Outlook

Central bankers in focus next week

On Wednesday and Thursday next week the new Fed Chairman Jerome Powell will deliver his semi-annual monetary policy testimony to Congress. Given the reaction to the new wording of the FOMC meeting minutes and the recent focus on inflation and interest rate increases, the testimony could give indications as to the Fed’s thinking. Separately, European Central Bank president Draghi will address the EU parliament on Monday.

Several data releases next week

Next week there will be data on US real GDP, core PCE, housing data and durable goods orders. The euro area will have inflation, GDP and PMI releases. There will also be manufacturing PMI data from China and Japanese industrial production figures will be released. Back in the US, the closely watched ISM report will be released on 1 March, but we will have to wait for the following week for the all-important US labour report.

Politics: May’s Brexit speech on 2 March and Italian election on 5 March

Next week Theresa May will give a speech outlining the UK government’s plans for the long-term relationship with the EU. There is likely to be news flow on the EU reaction to her proposals. In just over a weeks’ time there will be the Italian election, for which we are currently in a blackout period.

By Michael Ford, portfolio manager in the Multi-Asset Group

The post Global macro economic update on the week ahead (Week beginning 26 February) appeared first on AdviserVoice.

Michael Ford

Summary

• With equities up despite an upside surprise on the US consumer price index (CPI), it appears more likely that the recent equity sell off was about an unexpected spike in volatility, rather than an inflation scare.
• Next week, attention will shift to the latest purchasing managers’ indices (PMIs) (forecast to be slightly lower) and minutes of the last Federal Open Market Committee (FOMC) meeting (we don’t expect any real change).

Strategy review

Over the week, the US and emerging markets were the standout performers within equities.

Market and economic review

Markets: US CPI comes in a touch stronger-than-expected; bonds sell off, but the equity recovery continues

Equities started the week on a positive note, after the late rally in S&P 500 Index on Friday evening (UK time). Follow on gains were made around the world over the following few days, with Japanese equities the notable underperformer – linked to a strengthening Japanese yen (JPY. With the narrative focusing on rising inflation pressures, and the possibility of higher-than-expected policy rates, the safe-haven characteristics of the JPY were appealing to investors.

Nerves began to take hold as the release of the US January CPI number approached on Wednesday afternoon. It’s hard to remember a CPI number that has been so widely anticipated ahead of its release, and appeared to be so important to the future direction of markets. In the event, the core rate of inflation came in unchanged at 1.8%, when markets had expected it to edge down to 1.7%. Bond markets didn’t like that, but equities surprisingly rallied and the US dollar (USD) weakened.

The equity moves made sense to us, given core inflation remains at a very low level, and that over the medium term, economic developments should mean inflation rises, but only by an amount that will necessitate no more than the three rate hikes planned by the FOMC in 2018. Markets appear to agree, with the number of 25bp hikes in 2018 discounted only moving marginally higher to 2.9 since the CPI release. US equities seem to also like the latest fiscal boost planned by the Republicans (see below). More importantly, as the days pass, it appears increasingly likely that the recent equity sell off was largely driven by the fallout from stress in volatility structured products, rather than something more fundamental.

Bond markets have been a little more nervous, both about the inflation outlook and the increased bond supply implied by the government’s fiscal plans. While inflation is contained at low levels, the different perspectives of the bond and equity market can coexist. It’s only if inflation surprises significantly on the upside that something would have to give. This is not our base case. The weakness of the USD appears to reflect both the continued economic outperformance of Europe (which reported good GDP numbers this week – see the data section below), and concern over the US fiscal path.

Data: UK CPI surprise; Australian labour market changes; firm European GDP; weak US sales

With markets nervous about inflation, higher-than-expected core UK CPI prices were a disappointment, especially in light of the more hawkish comments made by the Monetary Policy Committee last week. But, inflation rates at the start of the price chain – input price and output price inflation – all fell fairly significantly, suggesting weaker CPI outturns over the next few months. Capacity constraints, linked to a lack of investment following the Brexit vote, might have an impact on UK inflation in the medium-to-long term, but we think the outlook is brighter for the shorter term.

In Australia, the closely watched National Australia Bank survey was better-than-expected on the headline numbers and the rate of unemployment edged lower (to 5.5%). That, in part, reflected a 16,000 increase in employment. The key point to mention here, though, is that all of that increase was linked to a rise in part time workers. Full time employment fell by 50,000. Given that, and the fact that the female participation rate increased, the inflationary impacts of stronger activity and higher employment are not as clear cut as they would at first seem. Indeed, Australia appears to be experiencing structural changes in the labour market that have been repeated around the world and helped keep inflation low.

In Europe, eurozone GDP grew 0.6% in Q4 2017, keeping the annual rate of growth at 2.7%. Germany was the standout, with a 0.6% quarterly increase, taking the annual rate of growth up to 2.9% from 2.8%. In addition, France reported a sharp drop in the rate of unemployment to 8.6% (from 9.6%). Such activity numbers are helping to keep the euro strong against the USD.

With all eyes on the US CPI release, not much attention was paid to weak US January retail sales numbers. In the normal course of events, this would have prompted a discussion on the sustainability of consumer spending. But, with the numbers probably weather distorted (large parts of the US were unseasonably cold in the month), and Q4 spending very strong, that didn’t really happen. One theory is that the cold weather explains the stronger-than-expected core CPI outturn. Remember, apparel prices rose by the largest monthly increase since 1990. That could plausibly reflect consumers buying cold weather clothes at unseasonably high prices.

Politics: more fiscal pump priming

The key political development during the week was the revelation that US President Trump was proposing a budget that would add $7tn to forecast deficits over the next 10 years (even with somewhat optimistic growth and, therefore, revenue forecasts). Key themes include reductions in social/healthcare-related spending, with spending increases for the usual Republican favourite, defence. In its current form, the proposal is unlikely to be passed (Congress controls the budget process rather than the President). But, with the majority of Republicans apparently happy to abandon their long standing support of fiscal probity, some budget deficit increases look likely. The big question here is, of course, whether or not the economy needs this boost. The fiscal purse strings are usually loosened at the low point of the cycle, rather than when growth is firm. As outlined above, it would seem that equities like this potential boost, regardless of the impact it has on the public finances, whilst the USD and bonds see it in a more negative light.

Elsewhere, South Africa’s President Zuma resigned, the formation of a German coalition government looked shaky as the leader of the Social Democratic Party had to step back from taking on the proposed role of Foreign Minister, and the Brexit debate rumbled on with the UK government apparently making little progress in its negotiations with the EU.

Outlook

Provisional PMIs should point to a slight slowdown in the rate of manufacturing growth

Next week, we get the provisional PMIs for the key economies, with the ZEW survey and IFO Index also published in Germany. We expect these to point to a slight slowdown in the rate of manufacturing activity. In the US, minutes of the January FOMC meeting are released, and Presidents Harker, Dudley and Bostic are all scheduled to speak. We’d be surprised if any of these events led to a material change in the “steer” that the FOMC gives markets on the likely future path of rates. In the UK, the latest batch of labour markets statistics will be released, as will the Q4 2017 GDP numbers. The latter should give a steer on the Brexit impact on investment and, therefore, help shed a little light on the capacity constraint concerns of the central bank. Chinese data are thin on the ground due to New Year celebrations, while in Australia the minutes of the last Reserve Bank of Australia policy meeting and the wage price index for Q4 2017 are released. Given the developments in the labour markets outlined above, we’d be surprised if the annual rate of wage growth increased from the 2% recorded last time round (as would the market).

By Michael Ford, portfolio manager in the Multi-Asset Goup

The post Global macro economic outlook on the week ahead (week beginning 19 February, 2018) appeared first on AdviserVoice.

Michael Ford

US earnings, German politics and the ECB meeting are all in focus

This is a busy week for US earnings, with 20% of S&P 500 Index market capitalisation reporting and a focus on large healthcare and industrial bellwethers.

We will continue to monitor management guidance on the impact of tax reform on effective tax rates.

The Bank of Japan and the ECB are meeting to set monetary policy.

No change in policy is expected from either, although the ECB might signal that it is preparing to amend the language on its quantitative easing programme at its next meeting in March.

n terms of the economic data to be released, the highlights will be the eurozone flash purchasing managers’ indices, Japanese inflation, US GDP, US durable goods and UK GDP.

Germany’s Social Democrats voted yesterday on whether to pursue formal talks with Angela Merkel’s Christian Democratic Union-led bloc on forming a government.

Elsewhere, the sixth round of the North American Free Trade Arrangement talks is also getting under way as US President Trump continues to reiterate his threat to pull out. Finally on politics, negotiations on a US government funding bill could well continue this week if the Senate fails to pass the stopgap bill passed by the House last week.

 By Michael Ford, Portfolio Manager in the Multi-Asset Group at Insight Investment

The post Thoughts on the week ahead Michael Ford – for week commencing January 22, 2018 appeared first on AdviserVoice.