Our market analysts, Michael Hewson and David Madden, examine equity markets in the context of higher US yields, as well as looking ahead to the latest EU and US inflation numbers and February PMIs.
After last week’s strong rebound from the recent lows, equity markets have struggled to maintain that momentum this week. With the end of the month now approaching, it seems likely that markets in Europe will see all the January gains wiped off. US markets may well fare slightly better, but that doesn’t change the fact that all the January optimism of record highs has taken a knock. We’ll also get to see the first snapshot of how the latest February manufacturing surveys look. Manufacturing PMI numbers have been strongly positive in recent months, however last week's numbers from February for Spain, Italy, Germany and France did show a bit of a slowdown. UK manufacturing is expected to remain steady from January’s 55.3.
Standard Chartered Bank FY17 results
Tuesday: The bank focused on emerging markets has seen profits rebound and loan impairments drop dramatically, but the latest update failed to reinstate the dividend. It is showing all the right signs of returning to health, but shareholders always appreciate a cash return. The robust update in August was overshadowed by the lack of a dividend. Lloyds and Barclays have promised to beef up their dividends, will Standard Chartered follow suit?
Chinese PMIs – manufacturing & services
Wednesday: The second-largest economy in the world will reveal their manufacturing and non-manufacturing numbers for February. Economists are expecting the manufacturing figure to rise from 51.3 to 51.4 in January, and the consensus is for a reading of 55.2 for non-manufacturing, down from 55.3 in January. The manufacturing sector has been growing at a slower rate recently, but keep in mind the September reading was the highest since 2012. Conversely the non-manufacturing industry has risen in the past four months and is near a multi-year high.
Eurozone flash CPI (February)
Wednesday: The lack of inflation in Europe has been one of the more puzzling aspects of the resurgence in economic activity across the region in recent months. Multi-year highs in PMIs have shown that growth is steady and unemployment is falling, yet inflation has remained stubbornly low. Last week's final CPI rate for January showed prices at 1.3% and core prices at 1%. While GDP suggests the economy is doing well, consumer spending has remained subdued. With the European Central Bank (ECB) on course to exit its asset purchase program this year, a higher euro will continue to cause problems for the ECB in meeting its inflation target.
US preliminary GDP & core PCE
Wednesday: The latest minutes from the January Federal Reserve meeting showed policymakers remain optimistic that the bank can meet its inflation target of 2%. The decline in the US dollar will no doubt help in this regard, but we still remain well below the bank's central target. Core PCE, which is the Feds preferred inflation measure, is currently at 1.5% - still below where it was this time last year when it was at 1.8%. The latest iteration of Q4 GDP is expected to show the US economy grew 2.5%, down from the previous reading of 2.6%.
Capita Group FY 17 results
Thursday: Capita’s share price plunged last month when the company issued a profit warning, halted their dividend, and declared they intend to raise £700 million via a rights issue. The company is servicing a high amount of debt, and is running a large pension deficit. CEO Jonathan Lewis is relatively new to the post and has decided to administer the tough medicine. Investors will be looking for any updates to the turnaround plan.
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