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AUTHOR: Jason J. Roque, CFP®, APMA®
TITLE: Investment Adviser Rep – CCO TAGS: TRADE, FRB, INTEREST RATES |
3 Doves, soft earnings, and what Brexit? A review of the market catalysts from last week.
3 Doves
The Federal Reserve Bank (FRB), European Central Bank (ECB), and Bank of Japan (BOJ) are all poised to add stimulus. The FRB has pretty much conceded a rate hike at their July 31st meeting. Most of the debate appears to be how large the cut will be, .25% or .50%. The ECB continues to struggle with weak economic data and is likely to make a move in the next month. The BOJ received new data last week showing weak inflation and exports. Inflation came in at a meager .6%[1] and exports to China for 1H 2019 falling by 8.2%[2]. To combat stagnating inflation, the BOJ is likely to add further accommodation. They may also forego their sales tax increase planned for later this year.
Soft Earnings
Earnings began this last week for the 2nd quarter. To no surprise, earnings are running at a negative rate so far. It is, however, encouraging that revenue is still a positive growth rate at this time. Earnings were expected to run negative as a result of normalization from the tax cuts from 2018. Forward guidance from companies has been negative, which could lead to reduced corporate contribution to GDP for Q2 2019.
What Brexit?
It is likely that Boris Johnson will be named the UK’s next Prime Minister. He has alluded to placing the house of commons in closure for the week leading up to the article 50 deadline of October 31st. This is thought to be a negotiating tactic to get the European Union to renegotiate the current deal. The House of Commons voted last week to prevent such a closure from occurring. The fight leading up to Brexit is likely to create volatility.
Conclusion
There were plenty of players to help shape markets last week. The S&P 500 lost 1.2% across the week. FRB speculation helped markets while earnings, Brexit, trade talks with China, and concerns over Iran weighed on markets. All of these could shift to positive contributors next week as most are geo-political in nature.
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[1]www.mfs.com/en-us/insights/expectations-grow-for-an-aggressive-fed-cut.html
[2] www.troweprice.com/personal-investing/planning-and-research/t-rowe-price-insights/markets/global-markets-weekly-update.html