Weekly Market Update – February 4, 2019

Last Week

  • Global Equities Recover After Tough Monday. Global equities began last week in decline following news of guidance cuts from companies impacted by slower Chinese growth only to bounce back on dovish Fed comments. Global equities moved 1.5% higher last week led by EM equities up 1.7%. Some steepness was added back to the yield curve as the 10-year Treasury is now 18 basis points above the 2-year Treasury.
  • U.S. – China Trade Negotiations End Without Resolution. Trade meetings completed Thursday without a major breakthrough. President Trump discussed meeting with Chinese President Xi Jinping in the near future to work out the more difficult issues, like the handling of intellectual property.
  • Fed Takes Dovish Tone in 2019’s First Meeting. Citing low inflation and risks to the global economy, the Federal Reserve put further interest rates on hold and announced that they will hold a greater amount of Treasuries on the balance sheet than originally planned when the wind down began.
  • Job Reports Surprises Despite Government Shutdown.The jobs added figure of 304k jobs added easily surpassed estimates though December’s figure was revised down to 222k. Wage inflation (3.2% year-over-year) declined from an upwardly revised 3.3% y/y December figure and the unemployment rate (4.0%) increased slightly along with the labor force participation rate (63.2%).
  • Slower Growth Projections Lead to Guidance Cuts – China’s growth slowdown led Caterpillar and Nvidia to cut earnings guidance. So far, 234 S&P 500 companies (47%) have reported earnings with aggregate year-over-year earnings growth of 14.6% and revenue growth of 6.0%.

This Week

  • About Half of Companies Remain to Report for Q4. Google (GOOGL) and Walt Disney (DIS) are two of the more notable companies to report earnings this week. The bulk of the remaining companies left to release earnings come out of the consumer discretionary, health care and information technology sectors.
  • State of the Union to be Held on Tuesday – President Trump will address Congress for the State of the Union where he will likely discuss his victories with economic growth due to tax cuts, job creation and his opinions on the immigration debate.
  • Bank of England Unlikely to Change Policy Amid Brexit Uncertainty. The Bank of England will meet on Thursday with little expectation for monetary policy changes. Declining inflation and increased uncertainty surrounding Brexit are likely to keep the monetary policy unchanged in the near term. Markets are pricing about a 41% chance of increasing interest rates above the current policy rate of 0.75% in 2019.

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