Weekly Digest - INVESTEC
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Last week saw global equities rise by just over 2% in sterling terms, whilst government bond yields edged upwards (to just under 0.8% for the 10 year gilt in the UK and 1.9% for US 10 year bond yields). Following the US Federal Reserve’s latest 0.25% reduction in US interest rates, an upward sloping yield curve, with no ‘negative kinks’, has now been re-established in the US.
There were three reasons for the positive tone last week. Firstly, the global earnings season continued to deliver “no worse than feared” results. With the bulk of the season behind us, the earnings decline for the S&P 500 thus far is -2.4%, on the back of 3% growth in sales. Secondly, there has been much more positive commentary from the US administration regarding prospects for a trade deal with China. It has been confirmed that a “phase 1” trade deal would include a partial roll-back of the current tariffs. Finally the US services sector grew at a faster rate than expected in October. This, coupled with the solid monthly employment data reported the previous week, reassured many that a “soft landing” is the most likely final outcome to the growth slowdown that has been evident since the trade war was declared in the middle of 2018.
There were no major headlines to focus on over the weekend. Markets in the Far East were weaker today, with an escalation of Hong Kong disturbances after a protester was shot. An indecisive outcome to Spanish elections makes politics a negative focus in Europe too.
This week is a quieter week for both economic data and corporate earnings. The focus will be on inflation data for the developed world, which are released from Wednesday onwards. On the trade front, President Trump is scheduled to appear before the New York Economics Club on Tuesday evening, with the usual potential to make market-moving comments – whether about trade or impeachment.
Looking to corporate earnings, key reporting names include Experian, ITV and Vodafone on Tuesday, followed by Spirax-Sarco, SSE and Cisco Systems on Wednesday and Burberry on Thursday.