Global stocks ended the week higher amid plentiful economic data. US economic data were mixed and political noise dominated headlines. January import prices rose a sharp 3.7% y/y, largely driven by volatile oil prices.
In the UK, Brexit uncertainty continued to abate after Parliament voted to give Prime Minister Theresa May the power to invoke Article 50 and begin exit negotiations with the European Union. UK economic data were broadly positive. December industrial production accelerated 4.3% y/y, well ahead of the 3.2% forecast.
In the eurozone, economic data were light. The eurozone retail Purchasing Manager’s Index (PMI) dropped modestly—from 50.4 in December to 50.1 in January.
In Asia, Chinese trade data reflect a robust economy—January imports climbed to 16.7% y/y and exports rose 7.9% y/y, beating expectations. Japanese data were broadly positive. December bank lending rose 2.5% and core machinery orders rose 6.7% y/y, well ahead of the 4.6% y/y forecast.
Global equities were relatively flat as investors sorted through a flurry of political headlines, economic data and corporate earnings reports. Markets faced no shortage of political news — including an executive order on immigration, a Supreme Court justice nomination, cabinet confirmation hearings, sanctions against Iran and additional executive action impacting the financial industry. Political ideologies aside, equity markets are trending higher.
US economic data were positive as the January employment report showed an increase of 227,000 in payrolls—greatly exceeding expectations for 175,000.
The first estimate of eurozone Q4 2016 GDP was reported at 1.8% y/y— beating analyst projections. The Bank of England— encouraged by better-than-expected economic conditions since the Brexit referendum—left interest rates unchanged and upgraded its GDP forecast.
In Asia, Chinese January services and manufacturing PMIs beat expectations. The Bank of Japan left interest rates unchanged and modestly upgraded its economic projections. Many developed countries release trade data next week.
Global equities ended higher amid strong economic data and political wrangling. The new Trump Administration dominated the media. As always, our political commentary is non-partisan, focused solely on assessing policies’ potential impact on stocks.
President Trump made headlines by signing several executive orders and memos on healthcare, trade, immigration and other policy areas. US data showed continued economic strength, but were mixed compared with expectations. IHS Markit’s preliminary January manufacturing and services Purchasing Manager Indexes (PMIs) exceeded expectations at 55.1. Non-US data were light this week.
UK Q4 GDP met expectations, rising 2.4% annualized on strong retail, hotel and restaurant spending. In the eurozone, IHS Markit’s January composite PMI hit 54.3, narrowly missing forecasts, while M3 money supply beat expectations at 5.0% y/y. Japanese December import and export growth both accelerated. Most countries release January manufacturing and service surveys. The US reports November home prices, December personal income and spending and January employment. The eurozone posts Q4 GDP, January CPI and December retail sales. The Fed and the Bank of England release interest rate decisions.
Global stocks were modestly lower despite upbeat earnings and economic data. Donald Trump was sworn in as President, with investors looking to his inaugural address for signs of policy priorities. As with all politicians, we remain cautious of rhetoric and prefer to judge policies once proposed and seen through to fruition (as so few policies generally are). Earnings season continued, with banks—which typically report earlier than others—so far reporting broadly stable core results.
British Prime Minister Theresa May provided some clarity on Brexit developments, namely regarding the mechanics and goals for passing a final deal. Though details were sparse, Parliament will vote on a finalized deal with the European Union, suggesting the agreement will likely have broad appeal. But it’s far too soon to know how negotiations play out—a process requiring years, not months. As expected, the European Central Bank (ECB) left interest rates and bond purchases unchanged, maintaining a dovish stance.
Chinese economic data was generally as expected—Q4 2016 GDP expanded 6.8%, bringing full-year growth to 6.7%, far from the “hard-landing” many have fretted for years.
President Trump’s first 100 days kick off, and investors will be eagerly dissecting policy pronouncements for market impact. Economic releases pick up next week—the US and UK release preliminary Q4 2016 GDP.
Global equities rose modestly as economic data were mixed and corporate earnings beat expectations Earnings season started positively in the US, with most major US banks beating expectations due to strong trading and loan growth. December’s Small Business Optimism Index exceeded expectations. Meanwhile, the Producer Price Index (PPI) met expectations, up from November.
On the political front, Republicans initiated the process to repeal portions of the Affordable Care Act, though it is impossible to know what their final plan will look like. Similarly, while President-elect Trump’s press conference garnered attention, it remains too early to discern specific policy plans or their market impact. European economic data were light but generally positive.
November industrial production exceeded expectations in the UK, Germany, Spain, Italy and France. UK construction output accelerated in November. Europe continues to be one of the world’s bright spots when it comes to economic results relative to expectations. The only major Japanese economic release was December money supply which increased, modestly missing forecasts. Chinese export growth, CPI and money supply disappointed, while import growth and currency reserves exceeded expectations. In the week ahead, the US releases CPI, industrial production and several housing reports. The Eurozone reports CPI, and the UK posts CPI and retail sales. Japan releases retail sales and industrial production. China provides an update on retail sales, fourth quarter GDP and industrial production.
Stocks cheered better than expected global economic data in a holiday shortened week of trading. US economic data remain positive. Weekly jobless claims decreased to 235,000—better than predicted and characteristic of a strong labor market as claims hover around a four decade low.
European economic data were light, highlighted by German factory orders missing expectations in November—reversing course after a robust +5% m/m October reading. November German retail sales climbed 3.2% y/y. C
Chinese official December manufacturing and services PMI data came in slightly below forecasts. Despite the miss, the readings remain consistent with continuing growth in the world’s second largest economy and the gradual economic pivot towards services.
In the week ahead data will be relatively sparse. December US data include retail sales and wholesale inventories. China releases December lending, inflation, money supply and trade figures. UK, France, Italy and Germany release November industrial production. The Bank of England will review interest rates during its monetary policy meeting.
Global equities were down for the week closing out an otherwise positive year. Economic data were limited in the holiday-shortened week. In the US, November home sales fell -2.5% m/m, while wholesale and retail inventories grew after contractionary readings the prior month.
Europe appears healthier than most investors appreciate, with regional economic data consistently surprising to the upside in Q4—bullish for 2017.
November Japanese economic data were muted. Japan’s jobless rate ticked up unexpectedly, while household spending contracted further despite forecasts for growth.
November Chinese industrial profits accelerated to 14.5% y/y—likely a result of increased infrastructure spending this year.
In the week ahead, OPEC’s agreement to reduce oil production by 1.2 million barrels per day goes into effect, and December Purchasing Managers’ Indexes (PMIs) are released for China, the eurozone, UK and US.