1. Davos Doom & Gloom
Before the World Economic Forum had even managed to kick off with a few mimosas, the tone was already all doom and gloom. Delegates from every corner of the globe arrived yesterday with a bleak outlook on global conditions going forward which is a stark contrast to last year’s attitude.
Last year, countries were significantly more upbeat as they were all experiencing synchronous growth, but few knew that it would be reaching its peak by October. That same synchronicity is happening this year, but in reverse.
An overwhelming majority of elites at Davos believe global growth will continue to decline over the next 12 months, supporting the IMF’s predictions that global growth would decrease from 3.7% to 3.5% this year.
However, the growing bearishness has not dampened investor confidence in the US equity market just yet. With all major indexes ending week last week in the green, investors may be looking to continue the risk-off trend and push stocks higher again this week, despite the thunder clouds looming over Davos.
Holding onto last week’s gains would be an important sign of strength from the US market. Let’s see if stocks can cut through the doom & gloom and get back to winning ways.
2. German Bund-nanza
German 10yr Bunds have been experiencing a bit of a roller-coaster of late as investors jump in and out of the perceived safe-haven asset in response to Brexit, US shutdown and Chinese growth-related news. And the wild ride may not be over just yet.
Last week saw bund yields record their biggest weekly rise since November, raking in roughly 20% on growing hopes of a softer Brexit. But with that possibility now out the window, it was china’s turn to add another twist in the roller-coaster by posting poor growth figures yesterday that sent investors flooding back into bunds – erasing 10% of the gains made last week.
Fluctuating yields means European investors are suffering from a great deal of anxiety and are unsure about the future of their investments in the region. With many conflicting signals in the economy, investors will be looking the the European Central Bank for guidance on Thursday to see how policymakers react to shifting global conditions.
Analysts are expecting a soft tone on monetary policy, but are also hoping that the ECB may have some tricks up its sleeve to revive investor confidence and bring some stability to the region. But for now, the roller-coaster goes on.
Today we are watching…
1. Prologis (#prolog)
US real estate company, Prologis, will be announcing its earnings today amid a considerable comeback that has seen the company claw back 14.45% of its massive year-end decline. However, many analysts are skeptical that Prologis can beat earnings estimates thanks to an oversupply of industrial property dragging rent and property yields down in the US. This one is worth keeping an eye on.
2. Capital One Financial (#capone)
Capital One is the next financial institution to release its results today and analysts are expecting it to underperform estimates. Net interest income and fee growth have increased modestly, but higher operating expenses and lower asset quality are expected to rule the day. Nevertheless, Capital One has an impressive history of earnings surprises. So watch closely for any upsets!