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The Early

17 Jan 2020 09:49

Markets: spot the difference

While the US indices have benefited from a solid start to Q4 earnings season, the bottom-up news from Europe this week has been less supportive, hence indices have flattened out in recent days. It was the same story yesterday with utilities +1.3% (boosted by RWE) again leading the way for the Euro Stoxx index, ahead of oil & gas +0.5 and financials +0.4%.

A firmer pound hampered the FTSE 100, with food producers +2.2% (AB Foods +4%), real estate +0.8% and mining +0.3% on a short list of outperforming sectors. Pearson -9% and Whitbread -5% were additional stock-specific drags after disappointing numbers. The Mid 250 managed a fractional gain but Brown Group -25% dented the SmallCap (while helping our PHySiCS long/short portfolio). Telecoms & utilities +1.6% and oil & gas +1.2% were the best of our PHySiCS sectors.

Overnight. Another new milestone for the S&P, which closed above 3300 for the first time. The technology group +1.4% continued to lead, with the chip stocks firm on a positive update from TSMC. Industrials +1.0% were also prominent as every S&P sector closed higher and breadth is better from a size angle, with the Russell 2000 adding another +1.4%. Asian indices took the in line Chinese activity data well, with Japan's Nikkei outperforming. The dollar touched an eight-month high versus the yen while commodities were little moved. European indications are firmer.

Early numbers. Dow +0.92%, S&P +0.84%, NASDAQ +1.06%, VIX 12.32; US 10-yr 1.83%; Nikkei +0.45%, Hang Seng -0.13%, Shanghai Comp -0.06%; £=$1.3077, £=€1.1740, Brent $64.57/bbl, Gold $1554.47, FTSE 100 indication +14 (at 6.25 UK).

Macro: China remains on track

The accounts of the December ECB meeting confirmed that members took a slightly more upbeat view of the outlook for the regional economy. Growth dynamics were characterised as “weak but stabilising” and there were some indications of a “mild increase” in inflationary pressure.

US retail sales grew steadily through December, with headline sales up by +0.3% MoM and the core measure higher by +0.5% MoM. Auto sales fell back by -1.3% MoM but higher gasoline prices lifted service station receipts by +2.8% MoM. Other areas of strength included clothing, building materials and electronic appliances +0.6% MoM. The Philly Fed's manufacturing index rebounded in December, as the headline index rallied to 17.0 (from 2.4), its highest since May. The new orders index improved by +7.1pp, shipments by +7.7pp and the employment reading by +2.5pp.

Chinese GDP growth of +6.0% YY for Q4 and +6.1% for 2019 overall was in line with expectations, albeit the slowest since 1990. The monthly activity readings for December confirmed that easing trade concerns helped momentum to pick up; industrial production unexpectedly picked up to +6.9% YoY, fixed asset investment expanded by +5.4% YoY for the year as a whole, and retail sales rose by +8.0% YoY.

Today’s events. UK Dec retail sales (9.30) +0.5% MoM, +2.6% YoY, core +0.7% MoM, +2.9% YoY; Eurozone Dec CPI (10.0) +0.3% MoM, +1.3% YoY, core +0.4% MoM, +1.3% YoY; US Dec housing starts (1.30) 1.38m; US Dec industrial production (2.15) -0.2% MoM, manufacturing -0.2% MoM, capacity utilisation 77.1%; US Jan Michigan consumer sentiment (3.0) 99.3.

Ian Williams
Economics & Strategy
020 7418 8819

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