US Earnings Season & Brexit to Dominate

Asian markets saw a mixed start to the trading week, whilst European futures pointed lower ahead of US earnings season. The big stories that have been driving trading over the past few weeks, namely the Fed and US – China trade relations, are not expected to see any major developments this week. 100% of the attention will on US earnings.

If the Fed does hike rates it looks like it would not be until well into 2019. The US government shutdown, now on its 24th day, is limiting the new economic readings that the market has to digest. With no new data and no hike due, this story is a standstill.

With regards to the US – China trade story; US and Chinese officials have just met. The meeting went very well according to all sides. However there has been no further evidence of the success, giving the markets limited ammunition with which to move forwards. The next US – Chinese meeting will take place at the end of the month, when the Chinese vice president travels to Washington.

The pause in developments of these two macro stories have left equities at a cross roads, ahead of US earning season.

US reporting begins today, with earnings expected to increase at a slower pace than originally assumed. Analysts have been backpedaling earnings expectations faster than usual in the run-up to the Q4 releases. Apple's high-profile warning may have unduly lowered the bar for other firms. 

Given the concerns over the US and global economic outlook, investors will be watching company growth expectations to provide clues as to where next for the markets.

Pound Stronger As No End In Sight For Brexit

This week’s focus shifts to Europe which is not a positive for sentiment. The Brexit deal is being voted on in Parliament on Tuesday and there is a possible end to the chaos in sight. European data is expected to show a eurozone economy that is losing momentum and inflation ticking lower. All in all, Europe is not about to provide investors with reason to cheer this week.

With just one day to go until Theresa May’s D-Day in Parliament, the pound was extending Friday’s rally. On Friday, reports of a possible extension of Article 50, sent the pound to a 7-week high of $1.2866. Sterling is clearly looking beyond the vote on Tuesday, which despite threats and concessions Theresa May is broadly expected to lose by a large majority. 

With more time to play with, a second referendum and / or no Brexit at all, are growing possibilities, which are keeping the pound afloat. Should the pound push through Friday’s high of $1.2866, then a rally targeting $1.30 could expected.