Now that Davos is over for another year, are we any the wiser as to where the global economy is heading than we were a week ago? If anything Davos this week was notable for who wasn’t there as opposed to who was, which meant while we got an awful lot of media coverage, we didn’t get much else.
The IMF announced a series of further downgrades to the global economy for 2019, however these merely confirmed the conclusions markets had arrived at towards the end of last year, so no surprises there.
The European Central Bank also downgraded its outlook for the European economy by shifting the balance of risks towards the downside, while trying to remain credible about how they felt the European economy would evolve over the next few months. Again, no surprises here, and the US, China trade talks don’t appear to be any further forward than they were a week ago, as we look ahead to next week’s meeting of US trade officials and the Chinese delegation led by vice Premier Liu He in Washington DC.
European markets, with the exception of the FTSE 100 have had another good week, largely driven by an expectation that central banks are likely to err more to the dovish side over the coming year, and earnings while a little on the soft side, don’t appear to be falling off a cliff.
1. US employment report/wages (Jan) – 01/02
December’s bumper payrolls report of 312k, along with wage growth of 3.2%, was one of those reports that ticked every conceivable box, however it also served to increase investor uncertainty about what further steps the Federal Reserve might take when it comes to monetary policy in 2019.
US markets had already come off their worst December performance in years over concerns about a US policy misstep in 2019, so it wouldn’t have been inconceivable for investors to assume that US policymakers might feel compelled to continue raising rates at a time when cracks are appearing elsewhere in the global economy. Some of these concerns have subsided in recent weeks due to various dovish comments from Fed chair Jay Powell as well as a number of his cohorts.
This week’s January report is unlikely to be anywhere near as good as December’s notwithstanding the ongoing US government shutdown, which has seen thousands of US government workers furloughed.
2. Brexit debate plan B – 29/01
Optimism over the prospect that a no deal scenario can be avoided has seen sterling hit eighteen month highs against the euro in the last few days. Some would say that these gains are more in hope than expectation, but they will still undergo a major test on Tuesday, as we close in on the latest in a number of Brexit deadlines as the countdown clock ticks down further towards the 29th March.
MPs start to debate the latest attempt to break the deadlock over the UK’s Withdrawal Agreement and political declaration. It is unlikely to be too much different from the previous deal, though there is likely to be an amendment, pushed forward by Labour’s Yvette Cooper and Conservative Nick Boles, which if passed, could force the government to ask the EU for more time, in the form of an Article 50 extension, if no deal has been agreed by 25th February.
The Irish border issue continues to be the Gordian Knot that policymakers remain unable to resolve.
3. Fed meeting – 30/01
This week's Fed meeting will see US policymakers, who have nearly all been out talking about the need for a pause in the US rate hiking cycle to discuss the state of the US economy, against a backdrop of a US economy, that is not showing any inflationary pressure and is likely to be starting to feel the effects of the US government shutdown on consumer confidence levels.
US officials will also be hindered by the fact that a lot of US economic data isn’t currently being published thus making it much more difficult to draw any sort of conclusions as to how the US economy is doing.
4. Euro-Zone CPI (Jan) – 01/02
The lack of inflationary pressure and weak economy continues to call into question the European Central Bank’s assessment of the eurozone economy. Last week the ECB left interest rates unchanged, but it is becoming increasingly apparent that they won’t be able to raise rates this year, as they would have liked to do. This was more or less confirmed after the central bank downgraded its economic outlook by stating that economic risks had shifted to the downside, and it was admitted that officials had discussed further possible stimulus measures in the form of TLTRO loans.
5. Global Manufacturing PMI’s (Jan) – 01/02
The manufacturing sector has been struggling for several months now, and recent events have shown that there is little evidence of a pickup in the short term. The end of 2018 saw a number of major economies flirting with stagnation at best, with a number in contraction territory including Italy and France.
Investors will be hoping that instead of the January blues we’ll see a pickup in economic activity, or at least some evidence that the slowdown is slowing.
6. Unilever (LON:ULVR) FY18 – 31/01
One of the stalwarts of the FTSE 100 it’s been a steady performer over the past few years, with shareholders fighting a successful battle last year to keep the company listing in the UK. This success resulted in the departure of CEO Paul Polman who retired at the end of last year.
New CEO Alan Jope who will have to start mending fences after the friction of the last 12 months. With brands like Marmite, Ben and Jerry’s ice cream it has started to rationalise by selling off its spreads business in seeking to maximise its margins. Given its size and scale, this week’s full year numbers shouldn’t be too much of a concern for shareholders.
7. Diageo (LON:DGE) 31/01
Another consumer staple whose shares have performed fairly steadily in the last 12 months, the maker of Smirnoff Vodka and Captain Morgan warned in September that exchange rate effects as a result of turbulence in emerging markets would hit sales to the tune of £175m, and £45m in terms of profits for the upcoming year. Despite that warning the shares have performed steadily with sales still expected to perform well across most of its markets. Its cash position has been improved by the sales of $550m worth of assets to Sazerac in November with most of the proceeds set to be returned to shareholders.
Profits are expected to come in at 71p a share.
8. Apple (NASDAQ:AAPL) 29/01
One of the main reasons for this month’s underperformance in the Apple share price was the decision at the beginning of January to downgrade the outlook for this quarter from $92bn to $84bn, due to concerns about the slowdown in China, and lower demand for its iPhones. This shouldn’t really have been a surprise given that this forecast always looked a little optimistic, given that Q4 saw revenues of $63bn.
Even with the higher price tag there has always been this feeling that Apple has been overreaching with its price points. We may well be there now given the intense competition in this space, and an asking price of over $1,000 a unit, while acceptable as an expense over a two-year period, starts to become less attractive on an annual basis. It would appear that Apple fatigue may be starting to set in with some of their customers particularly with the incessant minor upgrades, and lack of innovation elsewhere.
9. Facebook (NASDAQ:FB) Q4 18– 30/01
The last eighteen months have been hard going for the social media giant, caught up in fake news headlines continuously along with concerns over data privacy issues and tracking of user’s browser history, the company has also had to contend with new EU GDPR rules. This has raised concerns that the brand has become tarnished, a view that isn’t helped by CEO Mark Zuckerberg’s somewhat aloof demeanour when it comes to accounting for the company’s actions.
Its margins have also been shrinking, due to higher costs, which doesn’t help the top line and the share price plunge since last summer has been painful for shareholders.
Profits are expected to come in at $2.19c a share.
10. Amazon (NASDAQ:AMZN) Q4 – 31/01
Last year Amazon briefly became a $1trn company, helped in some small part by posting record profit levels for the first time with its cloud and advertising business.
Its share price plunged in Q4, along with the rest of the tech sector over concern that its valuation had become disconnected with reality, as well as a downbeat Q3 earnings update. It has recovered some ground since then after reporting a strong holiday period, where it sold a record number of items.
This week’s Q4 update is expected to see EPS of $5.54c a share, but it will be the revenue number which will be more closely watched.
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