Market Review – Fundamental Perspective

[PCMNewsdesk]

• Japanese and US stocks fall overnight
• NZD falls against the USD after weaker unemployment data
• Markets will watch the BoE and further Brexit developments today

Japanese stocks fell overnight on slowing earnings, despite positive news from SoftBank Group which announced a share buyback programme. US shares also dropped yesterday following disappointing results from videogame companies (Reuters)
GBPUSD traded in a relatively narrow range yesterday between 1.2979 and 1.2925 amid few significant Brexit developments. PM May is in Brussels today for a meeting with EC President Juncker to try and seek concessions on the Irish Backstop. Also today the Bank of England’s MPC meets, where markets will watch for any indications on future policy path
Barclays Research do not see the Bank changing its stance materially from the previous meeting, given no major shifts in data and continued Brexit uncertainty
Elsewhere, NZD dropped against the USD overnight amid worse-than-expected unemployment data, coming in at 4.3% compared to a consensus of 4.1%. USDINR also fell overnight after the RBI cut interest rates by 25bp in an unpredicted move (Bloomberg)
German Industrial Production missed estimations this morning, coming in at -0.4% m/m whilst consensus was 0.8% m/m. EURUSD dropped below 1.1360 on the news, continuing its downward trend from yesterday after negative comments from the IMF. It mentioned that Italy had fallen short on needed reforms and predicted that economic growth may stay below 1% through 2023 (Bloomberg)

[PCMNewsdesk]

• Equities under pressure after concerns over trade talks
• GBP rallies yesterday afternoon after the BoE meeting
• Barclays Research cuts their forecast for Fed rate hikes

Most global stocks came under pressure yesterday and overnight after reports that US President Trump may not meet President Xi Jinping before the 1st March deadline, after which US tariffs on Chinese goods are set to double (CNBC). European equities came under further pressure yesterday as the EC cut its forecasts for the Euro-area (Reuters)
GBPUSD rallied following the Bank of England meeting yesterday. Despite the bank cutting their short-term growth forecast to 1.2% from 1.7%, the Bank maintained a hawkish stance by lowering trend growth and forecasting 2021 well in excess, at 1.9%. Barclays Research continue to forecast no rate hikes for the next two years
GBPUSD rallied further after PM May and EC President Juncker agreed to more talks, along with the possibility to change the non-binding political declaration (FT)
Barclays Research changed their outlook for the Fed’s hiking policy following the dovish comments seen this year. They now expect one hike in September 2019 and another in March 2020, down from two hikes in 2019 and one in 2020
Elsewhere, AUDUSD fell after the Statement of Monetary Policy overnight. After a dovish monetary policy statement earlier in the week, the RBA downgraded its assessment of growth and inflation for 2019 and 2020, expecting 2019 GDP growth to slow to 2.75%

[PCMNewsdesk]

• US-China trade talks resume
• US shutdown concerns return
• Brexit back in focus this week

Asian equities are mixed ahead of this week’s US-China trade talks and amid continued concerns over global growth. Chinese Vice Premier Liu is set to talk to US officials this week following a round of lower-level talks starting today
US President Donald Trump last week ruled out a meeting with Chinese leader, Xi Jinping, before the March 1st deadline
Negotiations over US border security funding have broken down over the number of detention beds available for illegal immigrants. The Acting Chief of Staff Mick Mulvaney said he “absolutely cannot” rule out another US government shutdown
The focus for this week will be on PM May’s Withdrawal Agreement as it returns to Parliament. This is following the EU rejecting PM May’s pleas for a change to the Withdrawal Agreement (mainly with regards to alternative arrangements to the Irish backstop) last week
The UK parliament will vote on another round of amendments this Thursday with the aim to stimulate a decision either on the terms of the content of the WA or the timing of Brexit
PM May has now pledged to allow Parliament to vote on a Brexit deal again by February 27^th
Barclays Research attach a low likelihood that PM May will be able to put the WA back to a vote in Parliament by mid February as initially planned. Barclays Research expects the timing issue (whether or not to ask an extension to Article 50 and for how long) to become increasingly prominent and could possibly find a majority in Parliament (unlike the Cooper/Boles amendment)
GBPUSD is currently trading just above 1.2900 ahead of what is likely to be another important week for UK politics

[PCMNewsdesk]

• Asian stocks higher after trade deal optimism
  
• US Lawmakers reach a tentative border security deal
  
• Preliminary UK GDP pushes annual growth to six-year low

Asian equities are higher after optimism on a US-Sino trade deal and reports of a tentative border security deal. President Trump sounded positive saying he would “make great deals on trade”. Investors cautiously await the meeting between US and Chinese trade officials later this week
US lawmakers tentatively agreed to a deal on border security funding that could help avert another partial government shutdown due to start on Saturday. The GOP’s Richard Shelby thinks and hopes Trump would support it, despite congressional aides saying it did not contain the $5.7 billion President Trump wants for a border wall. The deal did reportedly include $1.375 billion for fencing


The Bank of Japan reduced its purchases of bonds for the first time in two months yesterday further boosting risk sentiment. Yields on ‘super-long’ Japanese bonds dropped to their lowest level in over two years on Friday and USDJPY is currently trading around 110.50 after posting a YTD high of 110.65 this morning


Preliminary UK GDP came in below Barclays Research’s forecast (0.2% q/q vs. 0.3% q/q), pushing annual growth to a six-year low as Brexit concerns weighed on business investment and a weakening global economy held back trade
The poor data put GBP on a weak footing and GBPUSD is sitting at 1.2870 having hit a 3-week low of 1.2845 yesterday. GBPEUR, meanwhile, is hovering around the 1.1400 level
Headlines confirmed yesterday that there will be no ‘meaningful vote’ on PM May’s Brexit deal this week
PM May is set to return to the House of Commons today to update MPs on the progress of Brexit discussions, despite the EU warning that her current plan is not viable

[PCMNewsdesk]

• US and Asian equities higher on hopes of the US averting another government shutdown
• RBNZ keeps rates on hold
• Focus today is on US and UK inflation data

US equities closed higher yesterday and the positive sentiment continued into the Asian session after Congressional lawmakers reached an agreement “in principle” that would avert another US government shutdown if finalized by the Friday deadline. Although, Trump had earlier expressed reservations about the agreement, he stated yesterday, that he doesn’t think another government shutdown will be seen
President Donald Trump also signalled a more conciliatory stance towards China, stating that he may let the 1st March tariff hike deadline "slide" if negotiations are going well

The RBNZ kept rates on hold at 1.75% as expected but pushed out the timeframe for its next rate hike stating that it expects to “keep the OCR at this level through 2019 and 2020”
The policy statement was not as dovish as some had expected given global headwinds and weakness in key domestic indicators. NZDUSD traded higher overnight in reaction

PM May stated yesterday that the government will seek to speed up the ratification of its Brexit deal with the European Union if time gets too tight to pass legislation before Britain’s March 29 exit day. This could give May a last minute chance to win a late concession from the EU at the European Council summit in Brussels on 21st March
GBPUSD is trading in the 1.2880–1.2920 range this morning, ahead of the UK CPI print

Today’s focus is on inflation data from both the UK and US. UK CPI should provide some further insight into the current state of the UK economy following on from Monday’s weak GDP print

[PCMNewsdesk]

• Asian stocks mixed as investors await the outcome of US-China trade talks
• President Trump reportedly intends to sign border security deal
• Focus for today is on UK Parliament and US data

Asian equities are trading mixed as investors hone in on today’s US-China trade talks. Discussions in Beijing will aim to de-escalate a tariff war ahead of the March 1st deadline for a US-China trade deal in order to strike an agreement between the world’s two largest economies. Talks are scheduled to run through until tomorrow
Trump was reportedly considering pushing back the deadline by 60 days to give negotiators more time (Reuters)
Despite trade tensions, Chinese exports surprisingly rebounded in January to give a trade surplus of $39.2bn. Exports grew 9.1% y/y whilst market consensus was -3.2% (Reuters)

Although President Trump previously stated that he is “not happy” with the deal reached by congressional negotiators, he told reporters yesterday that he would “take a very serious look” at the legislation, highlighting that he does not want the government to shut down again
The deadline for Congress to get a deal passed and signed by Trump is tomorrow

Looking ahead to today, focus will be on UK Parliament, where more amendments to the Withdrawal Agreement will be voted on. Barclays Research expect the timing issue, whether to ask for an extension to Article 50 and for how long, to become increasingly prominent and could find a majority in Parliament, likely benefiting GBP. Voting is due to start from 17:00 GMT
UK and US CPI came in below consensus yesterday at -0.8% m/m and 0.0% m/m respectively
GBPUSD is currently trading in the 1.2840 – 1.2880 range, having reached highs of 1.2958 yesterday

[PCMNewsdesk]

• Asian equities lower amid lack of trade progress
  
• US President Trump plans to redirect almost $7 billion for Wall
• Parliament rejects PM May’s Brexit approach

Asian stocks are trading lower as US-China trade talks are drawing to a close today with little progress having been made this week. US indices also closed mixed yesterday with US retail sales falling by 1.2% in January, which was well below forecasts and the biggest drop in nine years

US President Trump is reportedly planning to redirect almost $7 billion approved for other purposes for a wall as well as the $1.375 billion offered in the current agreed deal on border security which Trump is set to sign today. This measure should avoid another government shutdown whilst also allowing him to show his supporters he is willing to build the wall (Bloomberg)

Three amendments to PM May’s Withdrawal Agreement were selected by the Speaker of the House of Commons, John Bercow, to be voted on in Parliament yesterday. The amendments involved a another ‘meaningful vote’ in Parliament before 27th February, an extension of Article 50 and a government publication of the impacts of a no-deal Brexit
The first two of these amendments failed to pass while the third was pulled after the government promised to publish papers in relation to her amendment
PM May lost a motion by 303-258 votes as she looked for Parliamentary support to back her approach to renegotiate her Withdrawal Agreement with the EU
GBPUSD has been range bound overnight between 1.2789 – 1.2823

[PCMNewsdesk]

• Asian stocks rally amid positivity regarding Sino-US trade talks
  
• PM May travels around Europe this week ahead of another vote next week
  
• Markets will be closed in the US today for the Presidents’ Day national holiday

Asian stocks rallied overnight, with the Hang Seng up c.1.6% and China’s CSI 300 up c.3.2% (Bloomberg). These moves come amid positivity regarding US-China trade talks after President Trump mentioned that he may extend the 1st March deadline for a trade deal, potentially for 60 days (Bloomberg)
Barclays Research do not believe that an agreement is likely in the short term, and believe that an extension of the 1st March deadline has been mostly priced in
Today is likely to be a quiet day amid Presidents’ Day holiday

UK Prime Minister May is travelling around Europe this week in an attempt to win EU concessions on the Irish backstop, after another defeat in Parliament last week. She is to meet with EC President Juncker this week, as well as other EU leaders (Bloomberg)

In terms of next steps, either another meaningful vote will be brought to Parliament by Tuesday 26th February or the voting process will be repeated with a new motion and amendments on Wednesday 27th February

Markets will watch for further signs of economic slowdown in Europe this week, after Governing Council member Villeroy de Galhau said that the ECB could change its rate guidance if it becomes clear that the economic slowdown isn’t temporary. Data will be watched closely, as well as speeches by ECB President Draghi on Friday and Chief Economist Praet, who speaks three times at different events (Bloomberg)

The main focus for markets this week will be the FOMC minutes on Wednesday. After the Fed’s dovish turn in January, markets will be looking for the rationale behind the rhetoric change and guidance about possible interest rate and balance sheet policy changes