Except for the U.S. (S&P500 down 0.22 percent against the global trend), stocks around the world continued to rise over the week (MSCI EMU +1.07 percent, MSCI EM +1.41 percent, Nikkei225 +0.68 percent) though global economic data did not improve. The IMF reduced its global growth forecast to 3.5 percent in 2019 and 3.6 percent in 2020, in its second downgrade in three months, Japan’s exports in December sank 3.8 percent, dragged by the slowing demand in China (Japan’s trade balance shifting back into deficit), U.S. home sales nosedived 6.4 percent the same month, falling short of the weakest forecast, to their lowest in three years, and so forth. In a nutshell, all the evidence suggests that the world economy is weakening.
Despite this glut of poor economic data, a whiff of optimism came from technology stocks after upbeat earnings in the U.S. With utilities (+0.36 percent), this was one of the very few S&P sectors which ended the week in positive territory (+0.56 percent). Keep in mind that both sectors had recorded the largest inflows a week ago. The worst performers were energy (-1.44 percent) as oil prices slowed down, healthcare (-1.31 percent) after Johnson & Johnson forecast weak 2019 sales, and staples (-1.33 percent) as consumer sentiment measures declined.
The end of the 35-day partial shutdown announced by President Trump on Friday could have been seen as good news, but he simultaneously warned that a new shutdown could begin in just three weeks if he did not get « a fair deal from Congress » for an extension of the southern border wall. This has had no impact on interest rates so far (Treasury yield relatively stable).
Last but not least, bear in mind that the next round of trade talks between the U.S. and China is scheduled for Jan. 30-31. A key event for capital markets.
Find the full report here: https://www.trackinsight.com/weekly-flow-report/2019-01-25/global