Global stocks ended the week 0.3% lower despite upbeat earnings and economic data.
Donald Trump was sworn in as President, with investors looking to his inaugural address for signs of policy priorities. As with all politicians, we remain cautious of rhetoric and prefer to judge policies once proposed and seen through to fruition (as so few policies generally are).
Earnings season continued, with banks—which typically report earlier than others—so far reporting broadly stable core results. Stronger-than-expected capital-markets activities also helped results exceed expectations. December’s higher services prices lifted core US inflation ahead of estimates to 2.2% y/y. Industrial production also bested expectations, thanks to stronger utilities output and manufacturing expansion. December housing starts surprised positively, though building permit data slightly missed forecasts.
British Prime Minister Theresa May provided some clarity on Brexit developments, namely regarding the mechanics and goals for passing a final deal. Though details were sparse, Parliament will vote on a finalized deal with the European Union, suggesting the agreement will likely have broad appeal. But it’s far too soon to know how negotiations play out—a process requiring years, not months. December UK economic data were mixed, as consumer prices rose ahead of forecasts while retail sales were softer. As expected, the European Central Bank (ECB) left interest rates and bond purchases unchanged, maintaining a dovish stance. While ECB President Mario Draghi acknowledged improving inflation (up 1.1% y/y in December), this was largely due to energy prices. Core inflation remained benign.
Chinese economic data was generally as expected—Q4 2016 GDP expanded 6.8%, bringing full-year growth to 6.7%, far from the “hard-landing” many have fretted for years. December retail sales and industrial production expanded 10.9% y/y and 6.0% y/y, respectively, both near forecasts.
President Trump’s first 100 days kick off, and investors will be eagerly dissecting policy pronouncements for market impact. Economic releases pick up next week—the US and UK release preliminary Q4 2016 GDP. The US reports durable goods orders and the Conference Board’s Leading Economic Index. Retail sales figures are released in many European countries. Japan is set to report inflation and trade data.
Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses a Luxembourg tax basis. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.