The CIO office’s view of the week ahead.After the release of tepid consumer spending and business equipment figures for May, this week will be important in helping us gauge the prospects of the US economy, with the latest Fed minutes released on Thursday and US payroll figures a day later. The minutes should reflect our belief that the economy is in good shape, with growth in Q2 set to come in at a seasonally-adjusted quarter-on-quarter rate of 4.5%. We also expect US corporates to announce solid quarterly figures. But the question is, will they use recent trade tensions and odd signs of soft data to reduce earnings guidance? With such issues still up in the air, we retain our short-term neutral stance on equities.The global backdrop looks unsettled. Manufacturing growth in China slowed
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The CIO office’s view of the week ahead.
After the release of tepid consumer spending and business equipment figures for May, this week will be important in helping us gauge the prospects of the US economy, with the latest Fed minutes released on Thursday and US payroll figures a day later. The minutes should reflect our belief that the economy is in good shape, with growth in Q2 set to come in at a seasonally-adjusted quarter-on-quarter rate of 4.5%. We also expect US corporates to announce solid quarterly figures. But the question is, will they use recent trade tensions and odd signs of soft data to reduce earnings guidance? With such issues still up in the air, we retain our short-term neutral stance on equities.
The global backdrop looks unsettled. Manufacturing growth in China slowed in June, and Sunday saw the victory of left-wing populist Andrés Obrador in Mexico’s presidential election. The Mexican peso has been taking his widely expected victory in its stride, but markets will rapidly seek clarity on his policies—especially his fiscal ambitions—and his relationship with President Trump. As we move closer to the November mid-term elections in the US, we wonder about the future of NAFTA negotiations. Our baseline view is still that the American president’s tough, confusing talk on trade is part of an opening gambit to reach negotiated settlements. But with tariffs on Chinese goods due to take effect on 6 July, the risk of escalation is very real. The pressure on Fed policy from Trump officials is a further unknown, with top economic advisor Larry Kudlow seeming to question Fed plans for rate rises last week—the first such intervention since the Nixon era.
Last week saw a vague, very fragile European agreement on dealing with irregular immigration. Enough was achieved for shorter-term Italian bonds to rally. But the situation remains fragile and one wonders whether the new populist Italian government’s success on the immigration front (however illusory) might not encourage it to push forward with its ambitious fiscal plans. We therefore remain cautious on peripheral euro area bonds.
Cesar Perez Ruiz, Head of Investments & CIO