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
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.