This week was mixed for the market. Asia was a bit slow with the Chinese markets closed for the new year celebrations. This article will highlight some of the biggest stories that happened during the week and the implications going forward.
Bank of England
Yesterday, the Bank of England released its monetary policy decision. In it, the bank left interest rates unchanged as investors were expecting. The bank also lowered the growth forecast for the country. This was blamed to the ongoing confusion on global trade and the uncertainties brought about by Brexit. As you know, the country has about 50 days before it leaves the European Union. With no deal in sight, the uncertainties led to a sharp decline in the sterling. It however rose yesterday after the BOE statement because the declines were already priced in.
Reserve Bank of Australia
The RBA was another central bank that released its interest rates decision this week. As expected, the bank continued with the holding pattern, leaving rates unchanged. The hawkish statement led to a sharp increase in the Australian dollar. This changed on the following day when the RBA central bank governor said that there were options for a rate cut. This is because the Australian economy is facing a number of challenges, including the falling housing prices and increased household debt. Today, the RBA was back in the market, slashing the growth forecast for the year.
This week, the market continued to receive weaker data from the European Union. The most concerning number was about Italy, which is currently facing a recession and increased emigration. German factory orders also saw a sharp decline. For this reason, the European Commission lowered the growth forecast for the European economy for this year. This was a sharp revision from the previous 1.9% to 1.3%. The European economy has been affected by the contagion of the global trade conflict and its tough regulations that affect the level of investments in the region.
Trade talks between China and the United States have been ongoing and there were chances that a deal would be made before the March deadline. Yesterday, the US president announced that he would not meet China’s Xi Jinping to hammer a deal. This poured cold water on the expectations of a trade deal between the two countries. Failure to have a deal will accelerate a trade war with higher tariffs. However, I believe that it will need to get worse before it gets better on trade because the two leaders are under pressure to hammer a deal.
This week, the earning season continued with a number of companies releasing their earnings. In Europe, the key companies that reported were BP, Total, Unicredit, and Societe Generale. In the United States, the key companies that released the earnings were Google, Chipotle, and iRobot. While Google reported good numbers, the stock dropped as investors grew increasingly worried about the increasing costs.