Global stocks’ rebound continued for a third straight week, underpinned by optimism that the U.S. and China made progress in their first face-to-face negotiations in over a month, as well as speeches from several Federal Reserve officials—including Chairman Jerome Powell—that struck a more market-friendly tone than previous communications. All 11 S&P sectors advanced, led by the industrials and consumer discretionary sectors, which rose despite a mid-week battering of stocks in the retail industry following disappointing holiday sales figures from some key players.
Overseas, gains were most pronounced in Asia, but equities in Europe also rode the trade talk tailwinds. New policy measures announced by Chinese officials, including a planned increase in government spending, a cut to banks’ reserve requirements, and tax cuts for small and micro-sized businesses buoyed sentiment in the region. In Europe, gains were kept in check as traders digested disappointing manufacturing data out of Germany and France that sparked chatter of growing recession risks with Germany being Europe’s bellwether for industrial output, while France, the region’s second-largest economy, is still reeling from “yellow vest” protests that were expected to resume last weekend. “European economic data continues to disappoint, putting the European Central Bank in a tight spot as it looks to begin raising interest rates later this year,” said LPL Chief Investment Strategist John Lynch. “Add to that ongoing geopolitical turmoil in a number of countries, and we continue to remain on the sidelines in our tactical portfolios.”
Elsewhere, money flowed out of Treasuries, pushing yields broadly higher. The U.S. dollar continued to weaken, helping gold log its fourth straight weekly gain despite investors’ continued shift back into risk assets, while Brent crude prices snapped a 10-day record-setting win streak on Friday.
Turning to the week ahead, U.S. fourth quarter earnings season unofficially kicks off with a host of large financial institutions set to report. On the data front, look for U.S. retail sales, producer prices, and several sets of housing data to garner attention, though delays due to the ongoing government shutdown are possible. Overseas in Europe, the world will be focused on Tuesday’s Brexit vote, although key inflation data will be released in the UK, France, Italy, and the composite Eurozone. The docket’s fairly light in Asia, though Japan’s core inflation is noteworthy after data this week showed wage growth picked up in November. Also, fourth-quarter gross domestic product data from China will provide insight on the impact of U.S.-imposed tariffs. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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