The week ahead

By David Morrison  |  08/02/2019 13:23

Global stock indices have come off their recent highs and next week sees the release of some key GDP and CPI numbers 
 
After a lower close across Asian Pacific markets on Friday, US and European stock indices were on course to end the week on a softer footing. Investors tempered their appetite for riskier assets following reports that Presidents Trump and Xi Jinping were not scheduled to meet ahead of the US-China tariff hike deadline on 1^st March. This raised fears that the US and China would fail to reach a substantive trade deal, leading to an escalation in the current disagreement with tariffs on $200 billion of Chinese exports to the US raised to 25% from 10%.
 
China reopens
 
Chinese markets reopen on Monday following their week-long closure for the New Year/Spring Festival. US Treasury Secretary Steve Mnuchin will now lead a delegation to China to resume trade talks. But despite some upbeat rhetoric, investors were less than impressed when it was reported on Thursday that President Trump and President Xi Jinping would not be meeting before the 1^st March tariff increase deadline. This has raised fears that there won’t be a deal or that any deal will be insubstantial. This suggests that it won’t include US demands that China enforces US intellectual property rights, ends forced technology transfers and brings an end to cyber-hacking and unfair trade practices. If the US fails to get China to agree to these demands, then this will rebound on Trump. The president will face even greater ridicule from his hard-line supporters than was heaped on him over his ‘capitulation’ over the Mexican wall when he brought a pause in the government shut-down.
 
Data releases
 
On Monday we have the first look at the UK’s fourth quarter GDP along with Manufacturing Production and Business Inventories. Preliminary GDP is expected to rise by 0.6% over the previous quarter. Last Thursday the Bank of England downgraded its UK growth forecasts. The Bank now expects GDP of +1.2% in 2019, down from +1.7% in November. Meanwhile, the European Commission also released forecasts putting UK growth at +1.3% for this year, equalling its predictions for Euro zone and French growth, and above its forecasts for both Germany (+1.1%) and Italy (+0.2%).
Overnight on Wednesday the Reserve Bank of New Zealand is expected to keep its Official Cash Rate unchanged at 1.75%. Later, we have CPI numbers from both the UK and the US, and then Japanese GDP.
On Thursday China updates on its Trade Balance and then we have German and Euro zone GDP. Given the recent run of dismal economic numbers, there are fears that Germany’s GDP will register contraction for the second quarter in a row, thereby joining Italy in a technical recession. Overnight on Friday we have Chinese CPI and PPI with UK Retail Sales later that morning. The week is rounded off by US Empire State Manufacturing, Capacity Utilisation, Industrial Production, Consumer Sentiment and Inflation Expectations.
 
S&P Chart
 
The S&P 500 has run into resistance at its 200-day simple moving average which comes in around 2,745. On Tuesday the index was looking more overbought than in any period since September last year, just ahead of its 20% sell-off. Given the tremendous rally in global stock indices since Christmas, it isn’t surprising that some profit-taking should creep in now. But the much bigger question is whether this will prove to be a short-lived corrective pull-back, or is it the beginning of a more substantial sell-off?
 
 
 
 
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