Weekly Market Update

Author : Laura Hochstetler
Date : February 9, 2019

Market Action

Many of the major equity benchmarks closed more or less flat for the week, while others declined on the week, amid fresh evidence of slowing global growth and less optimism that the United States and China will be able to reach a comprehensive trade agreement by the US-imposed 1 March deadline. The yield on the US 10-year Treasury note declined 2 basis points to 2.63% compared with the same time a week ago, while the price of a barrel of WTI crude oil fell roughly $3 to $52.72 over the same time period. Volatility, as measured by the CBOE Volatility Index (VIX), rose to 17.5 from 16.5 last week.

Markets had been boosted of late by hopes that the US and China will reach at least a partial deal to end their standoff on trade. Those hopes faded a bit late in the week on word that US president Donald Trump and Chinese president Xi Jinping are not likely to meet when Trump is in Asia later this month to meet with North Korea’s Kim Jong Un. It is thought that the leaders will only meet if a deal is close to being finalized. Nonetheless, US negotiators Robert Lighthizer and Steven Mnuchin are heading to Beijing next week to continue talks, so there is still time to pull a deal together or extend the negotiating window beyond the 1 March deadline set by the US, thus avoiding triggering a hike in US tariff rates from 10% to 25%.

It is appearing increasingly possible that the US and the EU will reach an impasse on autos, a major European export to the US, since the EU refuses to negotiate the opening of its agricultural market to the US. On February 17th, the US Department of Commerce is expected to deliver a report on the national security implications of US auto imports. The president would then have 90 days in which to take action.
Eurozone policymakers expect economic growth to slow to a 1.3% annual rate in 2019, down from their most recent forecast of 1.9%. Slowing demand from China is receiving the bulk of the blame for the deceleration in growth. In the UK, uncertainty over Brexit is the culprit, according to Bank of England Governor Mark Carney. The governor warned that the risks of a no-deal Brexit have increased and that if that scenario unfolds, the UK’s economy is likely to fall into recession. The BOE cut its 2019 growth forecast to 1.2% from an earlier 1.7% outlook.

Turkey’s inflation rate crept up to 20.4% in January. Floods in Antalya province, the center of Turkey’s greenhouse production of vegetables and fruits, helped push food inflation up to 31%, the highest reading since 2004 and up from 25% in December. Although it is under political pressure to reduce interest rates, the central bank recently committed itself to maintain its tight monetary stance until price pressures weaken. It also forecast that inflation will fall by the end of the year.

India’s central bank cut its key interest rate by a quarter of a percentage point, to 6.25%. It was the first big policy decision taken under the new governor, Shaktikanta Das. Mr Das was given the job after Urjit Patel quit amid a quarrel with the government, which has been nagging the bank to do more to boost the economy ahead of this year’s election.

Click here for this week’s updated market returns table.

What could affect markets in the days ahead?

With negotiations between the UK and EU dragging on, it appears unlikely that the two sides can reach an agreement that can be ratified by the British Parliament by March 29th, if at all. While EU negotiators have publicly stated that there will be no renegotiation of the withdrawal agreement, there were reports this week that the EU may offer the UK political assurances – lacking the force of law – that it will offer a detailed proposal for a technological solution to the Irish border impasse, although it is thought that such a plan would be difficult to pass in Parliament.

US lawmakers are making progress toward funding the portion of the government that has not yet received appropriations for the rest of the fiscal year, the Wall Street Journal reported on Thursday. A physical barrier along parts of the US southern border is included in the package. An agreement may come together as early as this weekend, the paper reported.

US president Donald Trump announced Tuesday during his annual State of the Union address that he plans to meet with North Korean leader Kim Jong Un in Vietnam beginning 27 February. In the speech, Trump welcomed North Korea’s cessation of nuclear weapons and missile tests, as well as the return of US hostages held by North Korea, but said much work remains to be done.