January 21, 2020

Start your week off right with our market snapshot from the Global Economics and Investment Analysis Group.

WHAT HAPPENED

• Global stocks finished the latest week up +1.6% (+2.5% MTD); bullish narrative was underpinned by the U.S.-China trade deal. Gains were widespread and were led by developed markets (+1.6%), followed by emerging markets (+1.2%).
• In the U.S., the S&P 500 delivered +2.0% (+3.1% MTD) but lagged both the Russell 2000’s +2.5% (+1.9% MTD) and the NASDAQ’s +2.3% (+4.7% MTD).
• In fixed income, credit spreads tightened (U.S. HY -7 bp, U.S. IG -3 bp). U.S. sovereign bond yields were mostly unchanged, German Bunds and UK Gilts rallied, driving yields lower.
• The US majors dollar index was up +0.3% (+1.3% MTD).
• The U.S. and China signed the phase 1 trade deal but skepticism remains: China committed to buy U.S. goods above a 2017 baseline, listing $78 billion in manufactures, $32 billion in agricultural products, $52 billion in energy, and $38 billion in services. Trump stressed that the U.S. will maintain tariffs throughout phase 2 negotiations (beginning shortly) in order to preserve leverage. Concerns remain about $360 billion in existing tariffs, China's ability to hit aggressive purchase targets, and the ability to secure a phase two deal with much more difficult structural issues. The U.S.-China trade deal has already improved investor and market sentiment but need to see a return of investment to gauge the impact on the U.S. economy. With the positive effects of the three rate cuts still ahead of us, improved investment will support the U.S. economy and could lead to better-than-expected growth.
• Separately, the U.S. Senate approved the U.S.-Mexico-Canada (USMCA) free trade agreement this week.
• Reuters/Ipsos poll showed that 20% of registered Democrats and independents favored Sanders compared to 19% who supported Biden. Senator Warren was further back on 12%, while former NYC Mayor Bloomberg attracted 9% and Pete Buttigieg had 6% support. Poll came ahead of the February 3 Iowa caucuses.
• China Q4 GDP growth was steady at 6.0% y/y, matching expectations. 2019 GDP expanded 6.1% --also in line though still the weakest in 29 years. While the growth rate was within the government's 6.0-6.5% target range, consensus looks for further deceleration to 5.9% in 2020. China monthly activity data were firmer than expected. Industrial production rose 6.9% y/y in December, above consensus and follows 6.2% in the previous month. Fixed asset investment grew 5.4% YTD vs consensus 5.2%. Retail sales were up 8.0% vs consensus 7.9%.

WHAT'S AHEAD

• UK Unemployment Rate, Wages (Tuesday)
• Germany Economic Sentiment Index (Tuesday)
• U.S. Chicago Fed National Activity Index (Wednesday)
• European Central Bank Rate Decision (Thursday)
• Eurozone Consumer Confidence (Thursday)
• U.S. Leading Indicators (Thursday)
• Eurozone Markit Composite PMI (Friday)
• U.S. Markit Composite PMI (Friday)