By Deepta Bolaky
It was an interesting week on the geopolitical and economic front. Investors were busy with the earnings season, trade talks, Brexit and the Fed.
We started the week with profit warnings from Caterpillar and Nvidia. Caterpillar missed revenue expectations for the first time in a decade and exacerbated fears of slowing global growth. However, as the week progresses, we saw good corporate reports from some companies while others did better than initially expected. There were some downgrades in revenue forecasts, but overall, the earnings season has brought some surprises to the upside so far:
Apple, Microsoft, Alibaba, McDonalds and Tesla quarterly updates were mixed.
Boeing, Facebook and Amazon beat estimates. It should be highlighted that two of those belong to the FAANG Group.
All in all, the mixed earnings reported this week are not fuelling the existing fears but helping investors to gauge a more realistic picture of the markets and adjust their positions accordingly.
World Equity Indices (% Change)
Source: Bloomberg Terminal
The FOMC Press Conference and the Fed’s Monetary Policy Statement was probably the most important event for the markets this week. Investors liked the “patient” language adopted by the Fed and had set a positive tone for the equity markets. In the FX markets, we saw the US dollar plummeting against a basket of currencies before bulls stepped-in and helped the greenback to pare some of its losses.
US Dollar Index (Hourly Chart)
Source: GO MT4
There were two days of high-level talks between the US and China’s officials in Washington this week. While both sides still have to overcome significant hurdles, there are some positive comments following the trade talks. Trump’s comments were a big vague whereby it was hard to gauge whether there will be a deal by the March deadline or if the deadline will be postponed. All we know as of writing is that there are progress and President Trump and Xi Jinping will meet in late February for discussions.
The economic calendar was packed this week. We saw a few central bank speeches – ECB, BoE, and the Fed. After a dearth of US economic releases recently, we received data on the housing sector, consumer confidence, and the labour market. ADP Employment and New Home Sales surprised on the upside which helped the US dollar to find some relief, while the Purchasing Managers Index dropped from 65.4 to 56.7.
In Australia, the CPI figures were better than expected which aided the Aussie dollar to trend on the upside. The local currency also got some support from upbeat PMI figures in China. However, the gains were not significant given that the Manufacturing PMI remains under 50 which means it is still in the contraction phase.
As of writing, we are still awating notable data releases such as Caixin PMI figures, EZ Manufacturing PMI figures, EZ CPI preliminary figures and Non-farm payrolls.
The UK Parliament voted in favour of an influential Conservative MP, Graham Brady’s amendment to reopen negotiations with the EU over the Northern Ireland backstop. There was more clarity on a plan that can secure a substantial and sustainable majority for leaving the EU with a deal.
The Pound came under renewed selling pressure this week compared to last week. The Sterling was up against the G10 currencies last week, and traded on the back foot against rival currencies this week.
The US government opens temporarily after the most extended shutdown in US history. The three-week pause initially lifted investor sentiment and helped Asian stocks push higher on Monday’s open. It is reported that the shutdown cost the economy $11 billion, which includes approximately $3 billion of permanent loss.
Economists are predicting a drop of 0.2% in GDP for the first quarter of 2019. There are still some negative effects that may not immediately be identified or quantified at this stage. There are also few delays in the economic data releases.
However, Trump is not ready to stop his fight for the Wall and threatened a second shutdown.
Oil prices rebounded on the back of bullish oil reports and the political upheaval in Venezuela. However, as of writing, the bullish momentum lost its steam and WTI, and Brent Crude dropped due to conflicting geopolitical news.
USOUSD and UKOUSD (Weekly Chart)
Source: GO MT4
|Monday, 04 Feb 2019
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