DIGEST – Markets meandered once more on Tuesday as the hunt for catalysts rumbles on, though the S&P did notch a record close, ahead of another quiet data docket today.
WHERE WE STAND – I suppose this is what purgatory feels like; waiting, patiently or otherwise, for the next Trump trade-linked headline to cross news wires, and watching markets do nothing much at all in the meantime.
I can’t say that’s a particularly fun environment in which to operate, but all we can do is play the cards that we’ve been dealt. Amid a dearth of top-tier macro events over the next fortnight, it’s probably also worth getting used to these sort of conditions.
In any case, trade uncertainty will continue to hang like the ‘sword of Damocles’ over financial markets for the foreseeable future. April 1st – the jokes write themselves – is the key date for the diary, as that’s when the “America First Trade Policy” review, as well as the assessment into reciprocal tariffs, are both due to conclude. That date also, not coincidentally, falls just within Trump’s psychologically important first 100 days in office.
For the time being, then, and in the absence of any fresh clarity on the trade front, participants have little to get their teeth into. As such, markets should – by and large – continue to follow the ‘path of least resistance’; upside for equities, upside for the greenback, gains for gold, and sideways for Treasuries.
Yesterday largely brought that, with the dollar wandering higher against peers, equities ending the day marginally in the green (the S&P at an ATH), and Treasuries drifting around, amid a lack of catalysts. I guess, for now, the message really is one of doing nothing amid the intraday noise and chop – I remain bullish USD, and bullish equities, seeking to buy dips in both as and when they occur.
Here in the UK, the latest jobs report was marginally better than expected, as unemployment held steady at 4.4% in the three months to December, though the 6% YoY rise in average earnings over that period will clearly be a worry to the BoE, and is obviously incompatible with a sustainable return to the 2% inflation aim.
Meanwhile, on the fiscal front, Chancellor Rachel Reeves is using up what’s left of her apparent borrowed time to hold a confab with senior leaders in the financial services sector, seeking fresh ideas on how to kickstart the UK economy. To be quite honest, it seems like the only growth industry here in the UK is in catering services for all these pointless summits that keep being held!
Across the Channel, a miracle occurred, with Tuesday bringing better than expected German data, as the ZEW expectations index rose to its best levels since last July, at 26.0. Most of this increase, though, can be attributed to hopes that the economy will turnaround after Sunday’s federal elections. Of course, only time will tell on that front, particularly with likely protracted coalition negotiations set to take place after the polls close.
LOOK AHEAD – Another quiet docket lies ahead.
This morning’s UK inflation figures stand as the highlight, though are likely to make grim reading for BoE policymakers. Headline prices are set to have risen 2.8% YoY in January, with core inflation nudging back towards 4% YoY, and services CPI rising north of 5% YoY once more. Clearly, none of this suggests an acceleration in the pace of policy easing, while all of this reinforces the ‘stagflationary’ backdrop that continues to face the UK economy.
Elsewhere, the US delivers both housing starts and building permits figures for January, though risks to consensus on both prints are likely tilted to the downside, given the cold snap, and California wildfires seen during the month. Minutes from the January FOMC meeting are also due, which should be a decent cure for insomnia, if nothing else.
