Weekly View – A kangaroo market week
The CIO office’s view of the week ahead.
The first week of the year delivered a series of conflicting signals and a complementary dose of volatility in markets. After 20 days of daily moves of over +/-2% in the S&P 500 in 2018, out of last week’s three trading days of 2019 alone, two were marked by daily moves of over +/-2%. In data, the December US ISM manufacturing index showed its weakest reading in two years, as businesses continue to worry about trade tensions. However, this was countered by good news on Friday when a report from the US delivered a positive surprise, with December posting the strongest jobs growth in 10 months as wage growth accelerated.
Company news was also mixed. Apple dominated headlines and sent ripples through global markets after cutting its fourth-quarter sales forecasts on the back of slowing demand in China and falling new iPhone sales. Shares in Apple dropped, bringing other big tech players along with it, especially the chipmakers that make iPhone components. In the same week, US-based Bristol-Myers Squibb struck one of the largest deals in the history of pharmaceutical M&A after agreeing to buy its rival Celgene in a cash and stock deal worth USD 90bn. The kangaroo has come bouncing through markets in full force as we kick off 2019, and we will keep a close eye on the corporate reporting season, as earnings forecasts have started to come down.
Meanwhile, the central banks of the US and China have shown that they are ready and able to soothe and support markets. At the end of a week dominated by fears about the Chinese slowdown, the People’s Bank of China announced a USD 117bn stimulus measure by cutting the share of deposits commercial banks are required to hold in reserve. By a similar token, US Federal Reserve chairman Jerome Powell promised patience on rate rises on Friday despite continued positive economic data. Global markets gave a sigh of relief and equities regained some ground. However, while there is reassurance that the central banks of the world’s two largest economies still have stimulus levers at their disposal, the European Central Bank has very little it can do should markets require its support. In all, the start to the new year has proved supportive of our cautiously optimistic outlook for 2019.
César Pérez Ruiz, Head of Investments & CIO