Equity markets closed last week on a slightly stronger note, with the S&P500 up 0.1% and notching up its highest close since February. The S&P500 is now just 2.5% off its intraday record high reached in late January.
Corporate earnings season is now underway, and JPM and Citi reported better than expected earnings on Friday, although it didn’t help either share price (Citi closing down 2.2% and JPM 0.5%). Both banks cited a strong economy and loan growth as supporting their results. Corporate earnings season really kicks into gear this week with Netflix (tonight), Microsoft, IBM, Taiwan Semi (the world’s largest chipmaker and a major Apple supplier), GE and more of the US banks reporting.
There hasn’t been much news on the trade front, which has probably helped sentiment towards equities, although President Trump has continued to fire off barbs against the EU, telling CBS over the weekend that he considers the EU a “foe” that had taken advantage of the US with its trade practices.
US yields fell slightly on Friday, with the 10 year Treasury yield down -2bps to 2.83%. US consumer confidence data was slightly weaker than expected, but it remained at very healthy levels and had little market impact.
The focus of the rates market this week is Fed Chair Powell’s semi-annual testimony to the House and Senate. He will no doubt be asked by lawmakers how he sees the risks around trade relations and how that might affect the path of Fed policy. We’ll also be interested if Powell has anything to say about what conditions the Fed would want to see to take rates above “neutral” (the Fed currently sees the neutral rate at 2.9%).
It’s a big day ahead for Chinese activity data, with Q2 GDP, retail sales, industrial production and fixed asset investment all released. Weaker Chinese data this time last month preceded an almost 5% rise in USD/CNY in just three weeks and contributed to weakness in the NZD and AUD over this period (although the escalation in the US-China trade standoff no doubt contributed to the move as well).
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