Global inflation expected to remain contained. Find out more in this edition of “The Week in Review.”
Last Week Review
Late-week gains for global equities after relatively quiet week. Global equities (0.5%) were largely flat for most of last week, before moving somewhat higher last Friday1. The late-week gains were largely driven by constructive China trade data and a solid start to first quarter earnings season. Equity returns were relatively similar across the U.S. (0.6%), non-U.S. developed markets (0.4%) and emerging markets (0.4%)2. Following the weekly gain, global equities are now up 15.3% year-to-date3. Fixed income markets were fairly quiet last week, with U.S. interest rates somewhat higher from the prior week and some tightening in U.S. credit spreads4.
UK granted a six-month extension to Brexit. At a European Union (EU) summit last week, UK Prime Minister Theresa May and EU leaders reached an agreement to delay the Brexit deadline through the end of October. The UK will be able to leave the EU before then if it can agree on an exit plan with the EU, though the new extension will require the UK to participate in the European Parliament elections in late May. While reducing the odds of a no-deal Brexit for now, this most recent deadline extension also increases the likelihood of a softer Brexit outcome. However, May is likely to face increased resistance from some members of her Conservative Party who are unhappy with the multiple delays to Brexit. May will likely try to resolve Brexit before May 22 to avoid the European elections, though much uncertainty on Brexit remains5.
No major surprises in ECB meeting and Fed minutes release. In its meeting last Wednesday, the European Central Bank (ECB) left policy unchanged and confirmed that it will likely be on hold for the remainder of 2019. ECB President Mario Draghi’s messaging was fairly cautious, repeatedly stating that the central bank would step in with further accommodation if Europe’s growth outlook weakens6. The meeting minutes from the Federal Reserve’s March meeting were also released last week, where the Fed showed no signs that it is pondering a rate cut. While the Fed appears set to remain on hold in the near-term, the minutes did note that rates could move in either direction depending on future economic data. However, markets continue to expect a cut to be the next move, with a 42% implied probability of a cut by year-end7.
U.S. inflation data largely in-line with expectations. U.S. Consumer Price Index (CPI) data was generally consistent with economist expectations with the headline figure slightly ahead of consensus and the core figure slightly below consensus. The headline figure’s move up from 1.5% year-over-year (y/y) to 1.9% y/y was largely driven by increasing energy prices. Core inflation ticked down to 2.0% y/y, further limiting investor concerns about inflation moving sharply higher in the near-term.
This Week Preview
Roughly 10% of S&P 500 companies report earnings this week. This week marks the first full week of first quarter earnings season, with about 50 S&P 500 companies expected to report. A variety of sectors will be represented with notable releases including Bank of America (BAC) and Johnson & Johnson (JNJ) on Tuesday and Union Pacific (UNP) on Thursday8.
Modest rebound expected in manufacturing data in Europe. This Thursday, flash Purchasing Managers’ Index (PMI) data will be released across the U.S., Europe and Germany. The U.S. flash manufacturing PMI is expected to stay comfortably in expansionary (above 50) territory at 52.8, while Europe and Germany are expected to remain in contractionary territory but increase modestly from prior levels to 48.0 and 45.0, respectively. Investors will be following the data for signs that the manufacturing side of the European economy is improving. Flash services PMIs will also be released this week. The U.S. and Europe services PMIs have consistently remained above 50, reflecting a more favorable outlook for the consumer side of the economy. In addition, industrial production and retail sales data will be released in China.
Global inflation expected to remain contained. Inflation data will be released this week in a number of regions outside the U.S. including the UK (Wednesday), Europe (Wednesday) and Japan (Thursday). Headline levels broadly are expected to move a bit higher, while core levels are expected to remain close to prior levels.
Click here to view the full report.
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 08Apr2019 – 15Apr2019.
- 2) MSCI U.S. Equities IMI Index returns 08Apr2019 – 15Apr2019. Bloomberg, MSCI World ex-U.S.08Apr2019 – 15Apr2019. Bloomberg, MSCI Emerging Market Equities Index returns 08Apr2019 – 15Apr2019.
- 3) Bloomberg, MSCI ACWI (All Country World Index) returns 02Jan2019 – 15Apr2019.
- 4) Bloomberg Barclays US Aggregate Bond Index returns 08Apr2019-15Apr2019. Credit spread is the difference in yield between one debt security and another debt security with the same maturity but of lesser quality.
- 5) James, William. Retuers. Factbox: Brexit delayed- What happens next? Retrieved on 15Apr2019 from https://www.reuters.com/article/us-britain-eu-whatnext-factbox/factbox-brexit-delayed-what-happens-next-idUSKCN1RR117.
- 6) The Guardian. UK Economy Stronger than expected in February; ECB holds interest rates- as it happened. Retrieved on 10Apr2019 from https://www.theguardian.com/business/live/2019/apr/10/uk-gdp-report-growth-february-brexit-ecb-draghi-eurozone-business-live?page=with:block-5cade5198f0852bbb93b55a1.
- 7) Federal Open Market Committee. (March 20, 2019). Chairman Powell’s Press Conference [Interview transcript]. Retrieved on 15Apr2019 from https://www.federalreserve.gov/monetarypolicy/files/monetary20190320a1.pdf.
- 8) Thomson Reuters. S&P 500 Earnings Dashboard. Retrieved 15Apr2019 from http://lipperalpha.financial.thomsonreuters.com