1. Back To Work
he holiday period is over and the markets are being christened with a big week ahead. US-China trade war negotiations are scheduled to restart, Brexit’s countdown clock ticks down and the US government shutdown drags on. Are you ready for a big week?
Last week’s rocky start was replaced by optimism on Friday as strong jobs data and a flexible approach to monetary policy from Jerome Powell helped soothe inflamed markets. The start of trade negotiations also brought a bit of confidence back to Asian markets with all major regional indexes opening in the green this morning.
Battered Chinese stocks will hope for positive developments in the talks, and any signs of a concrete deal coming into effect within the 90-day window will provide a solid boost for global markets.
In the UK, Brexit will be the flavour of the week as threat of a no-deal Brexit or second referendum escalates. Stock and currency movements will likely be driven by developments in the political process, so stay on your guard this week!
As the shutdown creeps into another week investors are starting to take the risks of a prolonged battle more seriously. President Trump’s mention of a declaration of emergency to circumvent congress on his border wall funding is a scary prospect. All we know is, the longer the shutdown endures, the greater the risks to the economy.
Gear up for a big week ahead, people.
2. China Opens Its Wallet
President Xi Jinping has signed off on a cozy $125 billion rail project as part of China’s monumental Belt & Road initiative in an effort to boost its flagging economy. That’s a hefty wallet!
Last week’s poor manufacturing data has forced President’s Xi’s hand to ramp up fiscal spending in 2019 to relieve some of the trade war pressure on China’s economy. Analysts expect this to be the first of a number of fiscal injections this year, after monetary policy measures in 2018 failed to stem the economic slowdown.
The $125 billion will fund the development of 6,800km of new railway lines in an effort to generate higher levels of internal productivity and consumption. This represents a 40% increase on last year’s production which fell short of the government’s expectations by some distance with 7 railways projects being abandoned. Yikes, it seems the relentless Chinese productivity of old went missing in 2018.
Even though China showed strong improvements in its services sector, its economy still relies too heavily on exports and manufacturing. So for now, fiscal spending can buy the Chinese economy some breathing room, but without any material improvements in the trade war, economic conditions will continue to deteriorate.
All eyes on the trade war negotiations this week…
Today we are watching…
1. Delta Air Lines (#delta)
Delta Airlines is set to post its earnings on Thursday amidst a struggling airline sector. Last week saw Delta’s poor revenue forecast drag down the entire sector with many competitors falling prey to the vicious sell-off too. Weaker demand across the industry has many analysts speculating about a poor earnings report, but only time will tell.
2. SPDR S&P 500 (#spy)
After some positive signals from the US economy, the S&P 500 finally looks to have gained some stability. Better than expected jobs data fueled a strong close to last week that is helping bring some confidence back to US markets. The week ahead will be an important benchmark for US stocks in 2019, so keep your eyes peeled!