Weekly Digest- INVESTEC
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After a year at the helm of the Federal Reserve, Chairman Powell performed a 180 degree pivot last week and the Fed decided to keep interest rates on hold. Any suspicions in the market that this change of policy was because the central bank had foresight of some downbeat data were firmly put to rest on Friday. The latest release of US manufacturing and payroll data was comfortably ahead of expectations, though there are risks that the government shutdown has introduced a greater element of uncertainty into the numbers. There was a sharp downward revision to December’s print, but nothing to derail the apparent momentum of the US economy, with January marking the 100th consecutive month of payroll expansion.
This week, we have President Trump’s delayed State of the Union address tomorrow and the meeting of the Bank of England on Thursday. We also have a number of global manufacturing data releases and we expect the European reports to be the focus, with Italy already in recession and the lead indicators deteriorating elsewhere.
There was little specific commentary on the progress of the US-China trade talks last week. China’s trade delegation said that “important progress” was made, along with a commitment by the Chinese to buy more soybeans. Even so, the truce is coming to an end and if they fail to reach a more material agreement before the 1st March deadline, the US plans to increase tariffs on $200 billion of goods to 25%.
Despite the strong macroeconomic data in the US on Friday, the market remained preoccupied with earnings season and in particular the news flow from Amazon the night before. Amazon fell 5.4% on Friday (-1.4% in 2019, +14.8% over twelve months) after the company warned of increased investments in 2019. Of the 235 S&P 500 companies that have now reported, 172 have surpassed expectations. On aggregate, companies have reported annual sales growth of 6.2% and earnings growth of 14.7%. Today, we have results from Alphabet, followed by Estee Lauder and Walt Disney tomorrow. Later in the week, there are updates from GlaxoSmithKline, Compass Group and Total.