Global equities fell modestly amid generally positive economic data and persistent political chatter. US economic data were largely positive. Trade picked up in January as exports and imports climbed, while February nonfarm payrolls handily beat expectations. House Republicans unveiled legislation to replace the Affordable Care Act, but it remains too early to project potential market impact as the bill may be significantly altered or supplanted during the legislative process. European economic data were mixed but continue to show positive momentum.
The third and final estimate of Q4 2016 eurozone GDP confirmed 1.7% y/y growth—the 15th consecutive quarter of expansion.
In Asia, China’s annual National People’s Congress confirmed expectations for most 2017 economic targets—specifically, 6.5% GDP growth. South Korea’s Constitutional Court permanently removed Park Geun-hye as president amid corruption charges. By law, the country must now elect a new president within 60 days.
In the week ahead, the US releases employment data, the Fed and Bank of England meet to determine their countries’ respective monetary policies, and the Netherlands holds Parliamentary elections. As the election passes, expect falling uncertainty to broadly benefit global stocks regardless of the outcome.
Global equities ended the week higher amid widespread positive economic data. US markets digested abundant central bank chatter and President Trump’s first address to Congress. Beyond all the talk, economic data were largely positive, reflecting a broadly healthy economy. The second revision of Q4 2016 GDP was unchanged—the US economy grew at 1.9% (annualized), as high consumer spending and vehicle sales offset slowing government purchases. French, German and eurozone PMIs remained expansionary in February.
UK data were mixed but remained broadly positive—February home prices rose 4.5% y/y, construction PMI rose ahead of expectations, the UK’s services and manufacturing PMIs slowed, but continued to signal growth.
February Chinese manufacturing expanded on strong domestic and overseas orders, surprising forecasters’ expectations for a slowdown. Japan’s January manufacturing PMI continued expanding, housing starts rose 12.8% y/y (sharply ahead of the 3.2% forecast), retail sales were modestly ahead of estimates and unemployment fell to 3%.
In the week ahead, US economic data are light, January factory orders and February employment reports likely take center stage. China releases February inflation and trade data, while Japan reports Q4 GDP and February machinery orders. The eurozone posts Q4 GDP and the ECB releases a monetary policy announcement.
Stocks ended slightly higher despite sparse economic news. In the US, earnings season continued—two-thirds of companies beat earnings targets so far and over half beat revenue estimates. The Fed released minutes from its latest meeting—expectations for gradual rate increases remain intact.
United Kingdom Q4 2016 GDP was revised higher in its second release. The stronger posting was tied to better than expected consumption.
January Japanese trade data disappointed, with export volumes falling 0.3% y/y.
January Chinese loan data continued slowing.
Mexico’s Q4 2016 GDP grew 2.4% y/y, thanks to strong services output.
In the week ahead, the US releases January durable goods orders data. President Trump will address Congress for the first time. The UK releases January home prices. Japan reports January retail sales and industrial production.
Global stocks ended the week higher amid plentiful economic data. US economic data were largely positive— the Leading Economic Index (LEI) grew 0.6% m/m, headline Consumer Price Index (CPI) grew 2.5% y/y and core CPI grew 2.3% y/y. January retail sales beat expectations, suggesting strong consumer demand.
UK unemployment rate held at 4.8%, while jobless claims dropped despite expectations for a slight uptick. Both headline and core CPI grew while retail sales dropped slightly, missing expectations.
Eurozone Q4 2016 GDP was revised down from 0.5% q/q to 0.4%, still marking the eurozone’s fifteenth consecutive quarter of growth.
In Asia, Chinese CPI accelerated to 2.5% y/y, ahead of estimates and hitting a new multi-year high. Japanese Q4 2016 GDP grew an annualized 1.0% q/q, narrowly missing expectations but marking the country’s fourth consecutive quarter of growth.
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 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.