Weekly Wrap-Up

Last Week In Markets: Jan 22 - Jan 26, 2018

Fisher Investments recaps the biggest market, political and economic news from last week, including the US government shutdown, German coalition talks and Q4 GDP data.

Global equity markets rose 1.9% higher amid political headlines and positive economic data.

US data were mostly positive. The first estimate of Q4 2017 GDP was reported at 2.6% annualized—slightly missing expectations. The Conference Board’s December Leading Economic Index (LEI) rose 0.6% m/m, ahead of the consensus forecast. The January Markit manufacturing flash Purchasing Managers’ Index (PMI) rose to 55.5 while the services flash PMI fell to 53.3. However, both readings remain above 50—indicating expansion. On Monday, Congress passed a short-term government funding bill to end the short-lived shutdown. This latest stopgap measure will keep the government funded until February 8. Expect similar shutdown drama to repeat in headlines as the next deadline approaches. While government shutdowns make for great media fodder, they historically have had a negligible effect on markets or the economy. On Tuesday, the Senate confirmed Jerome Powell as the new Fed Chairman, who replaces the retiring Janet Yellen. We’d caution against jumping to any conclusions about Powell—trying to decipher future Fed actions is a fool’s errand. For more, revisit our 11/3/2017 commentary, “Mr. Ordinary and the Wizards of Constitution Avenue.”

In the eurozone, January Markit services flash PMI rose to 57.6 while the manufacturing flash PMI came in at 59.6. December household lending increased 2.8% y/y. The European Central Bank left interest rates unchanged. In Germany, the Social Democratic Party (SPD) voted to move forward with formal coalition talks with Chancellor Angela Merkel’s Christian Democratic Union (CDU). Regardless of whether a coalition government is formed or new elections are called, Germany probably gets more political gridlock—keeping legislative risk low. In the UK, the first estimate of Q4 2017 GDP beat expectations, rising 1.5% y/y. The unemployment rate held steady at 4.3% in the three months to November.

Economic data in Asia were light. In Japan, the January Nikkei manufacturing flash PMI rose to 54.4, ahead of forecasts. December import values jumped 14.9% y/y, while export values rose 9.3% y/y. December core-core consumer prices (excluding fresh food and energy) rose 0.1% y/y, missing expectations. The Bank of Japan left monetary policy unchanged.

The Week Ahead:

In the US, data releases include the January ISM manufacturing PMI and employment figures. Wednesday, the Fed meets to set monetary policy. The eurozone releases the January Markit manufacturing PMI, the December unemployment rate and the first estimate of Q4 2017 GDP. The UK reports January Markit/CIPS manufacturing PMI. Japan announces December retail sales, industrial production and unemployment. In China, releases include the Caixin manufacturing and non-manufacturing PMIs.

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.