UK Prime Minister Theresa May continued to try working her Brexit agreement through parliament last week with little success. Find out more in this edition of “The Week in Review.”
Last Week Review
Modest gain for equities as interest rates push lower. Global equities were up 0.7% last week, as gains in the U.S. (1.4%) led the way, with muted returns in non-U.S. developed markets (0.0%) and emerging markets (-0.1%)1. Interest rates continued their recent downward move, with the 10-year U.S. Treasury yield currently at 2.41%2. Last Friday also marked the end of the first quarter, where global equities saw one of their best quarters in years with a 12.3% gain3. Across the major equity regions, U.S. equities led with a 14.2% return, followed by non-U.S. developed markets (10.7%) and emerging markets (9.7%)4. Fixed income also performed well in the quarter with strong returns in investment grade (2.9%) and high yield (7.3%)5.
UK PM May’s Brexit deal defeated again in parliament vote. UK Prime Minister Theresa May continued to try working her Brexit agreement through parliament last week with little success. In a speech to members of her party, May offered to step down in the next few months if her deal was passed, which would allow a new PM to step in and lead the next round of negotiations with the European Union. May’s concession helped convince some more members of parliament to support her deal, but not quite enough to ensure a majority. Parliament voted on the withdrawal agreement portion of her deal, where it lost by a vote count of 286 to 344. Also, in the middle of last week, a series of indicative votes on different paths forward on Brexit failed to create a majority for a particular option. The Brexit situation remains very fluid, with more developments expected this week. The two key deadlines around Brexit remain at May 22 if a deal is approved by parliament or April 12 if there is no agreement reached in parliament6.
U.S. core inflation ticks down from prior levels. U.S. Personal Consumption Expenditures (PCE) core was released last week, where it dropped slightly below both consensus expectations and the prior level to 1.8% year-over-year (y/y). With the Federal Reserve’s preferred inflation metric still below its 2% target, the lack of strong inflation pressures further supports the Fed’s pivot to a more dovish stance in early 20197. Also, inflation data in Germany was short of expectations and prior levels, with the Consumer Price Index (CPI) at 1.3% y/y compared to the 1.5% y/y expectation.
Fed leaders not yet ready to support a rate cut. In appearances last week, multiple Federal Reserve governors commented that they believe the Fed is not to the point where it should be considering a rate cut. The Fed leaders also downplayed concerns of a U.S. recession. Meanwhile, market expectations continue to imply the next Fed move will be a rate cut with a 70% probability of a cut in 2019 and about a 28% probability of multiple cuts in 20198.
This Week Preview
Investors looking for further clarity on global growth outlook. This week features a number of data points related to economic growth that investors will be tracking for more clarity on the global growth outlook following a set of disappointing flash Purchasing Managers’ Index readings in mid-March. Key areas of focus in the release of additional Purchasing Managers’ Index data include signs of improvement in Europe in addition to the growth environment in China. Additionally, the Institute of Supply Management (ISM) Manufacturing Index will be released in the U.S. along with Europe headline CPI, both of which are expected to stay fairly close to prior levels.
Jobs added figure expected to rebound in March labor market report. In this Friday’s U.S. labor market report, economist surveys expect a jobs added figure of 175k, which would be an improvement from February’s 20k figure. Wage growth is expected to remain unchanged at 3.4% y/y and the unemployment rate is also expected to remain consistent with the prior month at 3.8%. Despite the weak reading last month, the U.S. labor market remains strong overall with an average of 190k jobs added over each of the last six months.
China trade officials head to the U.S. for another round of talks. A delegation led by China’s top trade representative Liu He will head to the U.S. this week for discussions on trade. Last week’s talks in China were labeled as constructive by the U.S., but there is currently no expected deadline for when a trade agreement may be reached.
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Unless otherwise noted, all opinions expressed in this post are those of the author and do not necessarily represent the views of Northern Trust. Information contained herein is current as of the date appearing only and is subject to change without notice.
- 1) Bloomberg, MSCI ACWI (All Country World Index) returns 25Mar2019 – 29Mar2019. Bloomberg, MSCI U.S. Equities IMI Index returns 25Mar2019 – 29Mar2019. Bloomberg, MSCI World ex-U.S. IMI Index returns 25Mar2019 – 29Mar2019. Bloomberg, MSCI Emerging Market Equities Index returns 25Mar2019 – 29Mar2019.
- 2) Bloomberg, 10-Year nominal U.S. Treasury rates using data available as of 25Mar2019 – 29Mar2019.
- 3) Bloomberg, MSCI U.S. Equities IMI Index returns 02Jan2019 – 29Mar2019.
- 4) Bloomberg, MSCI U.S. Equities IMI Index returns 02Jan2019 – 29Mar2019. Bloomberg, MSCI World ex-U.S. IMI Index returns 02Jan2019 – 29Mar2019. Bloomberg, MSCI Emerging Market Equities Index returns 02Jan2019 – 29Mar2019.
- 5) Bloomberg Barclays Aggregate Index returns 02Jan2019 – 29Mar2019. Bloomberg Barclays High Yield 2% returns Capped Index.
- 6) The New York Times. Retrieved on 29Mar2019 from https://nytimes.com/2019/03/29/world/europe/theresa-may-brexit.html.
- 7) Federal Open Market Committee. (March 20, 2019). Chairman Powell’s Press Conference [Interview transcript]. Retrieved on 22Mar2019 from https://www.federalreserve.gov/monetarypolicy/files/monetary20190320a1.pdf.
- 8) Federal Open Market Committee. (March 20, 2019). Chairman Powell’s Press Conference [Interview transcript]. Retrieved on 22Mar2019 from https://www.federalreserve.gov/monetarypolicy/files/monetary20190320a1.pdf.
- Past performance is no guarantee of future results. It is not possible to invest directly in any index and index performance returns do not reflect any management fees, transaction costs or expenses.