6 to 12 February: It’s Complicated

In our last issue, we talked about investors being “caught in the headlights”; struggling for conviction as strong economic data contrasts with heightened political uncertainty and (for developed markets) challenging valuations. Market moves this week suggest this dynamic continued – the S&P 500 hit 39 consecutive days without a move of more than 1% (a new record), whilst equities outside Europe climbed the “wall of worry”, moving higher.

Actually, there were potentially a few cracks in the status quo:

• Congenial Trump: after weeks of bashing Japan for currency manipulation, Trump went out of his way to extend a warm welcome to Prime Minister Abe, “The bonds between our two nations and the friendship between our two peoples is very, very deep. This administration is committed to bringing these ties even closer,” then later “When I greeted him today at the car… I shook hands but I grabbed him and hugged him because that’s the way we feel.”
• Mixed Data: although in aggregate still pointing towards continuing economic momentum (China trade data strong), US sentiment and European industrial production disappointed.
• Peripheral Roller Coaster: the Greek 2-year yield touched 10.23% (from below 6% a week prior) before consolidating around 8.5%.
• Central Banks “Internalising”: the RBI India did not cut rates as expected. Not significant in isolation, but following a broader trend of backing away from the monetary Kool-Aid (see also UK, Korea, Malaysia, Indonesia).

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