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15 July 2019: Stock markets take a breather ahead of earnings season
Global markets stalled last week ahead of the US earnings season kicking off, even though US Fed Chairman Powell’s dovish testimony to Congress provided reassurance that the central bank is ready to cut rates by 25bp later this month. In Europe, equities edged lower on concerns about trade and geopolitics, while US core CPI rose more than expected to 2.1% year-on-year, pushing long-dated yields higher.
There’s a glut of data due to be released next week. Q2 earnings season starts in the US, with 63 companies – mainly financials – set to report. The UK takes centre-stage in Europe, with labour market data likely to remain resilient despite the increasing risk of a no-deal Brexit, while June inflation might come in below the Bank of England's 2% target. Germany's ZEW survey will provide information about the state of the eurozone’s largest economy. We’re also eager to find out China’s Q2 GDP figures, as well as industrial production and retail sales for June: the data are likely to highlight an economy under pressure from the trade war with the US as policy support is taking time to kick in.
Latest performance
Source: Lyxor International Asset Management. Figures reported in local currency terms. Past performance is no guide to future returns. Data as at
Our key calls
Week commencing 15/07/2019
Long US equities
Earnings season in the US is about to begin, and the consensus expectation is for the S&P 500’s earnings to fall by 2.6% relative to Q1. However, that’s by no means certain, and we’re long US equities because any positive surprises could drive the S&P 500 even higher.
Buy UK Gilts
The UK economy has been displaying its resilience despite the increasing likelihood of a chaotic departure from the European Union. But Brexit is likely lead to further uncertainty in the markets, which should benefit Gilts.
Buy global emerging equities ex-China
The Chinese economy is still under pressure from the ongoing trade dispute with the US, and is set to remain sensitive to further trade tribulations. In our view, the 2020 US presidential elections should prevent President Trump from imposing additional tariffs, but we believe an allocation to Chinese equities should be managed independently of a broader emerging equities portfolio.
Things we are watching out for
The Main Event
Lyxor strategists on the key moments in the week ahead
15
July
Other major events
4 more things to put in the diary
15 July
China GDP, IP, retail sales. US earnings season starts
20
Juil
Fed meeting
21
July
Japan upper house elections
23
July
UK next PM announced
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These are the views, opinions and recommendations of Lyxor International Asset Management (“LIAM”) Cross Asset and ETF research analysts and/or strategists as at 18 February 2019. To the extent that this research contains trade ideas based on macro views of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Research opinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from the views and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/ or strategists routinely consult with LIAM sales and portfolio management personnel regarding market information including, but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodity indices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and reports. Lyxor has mandatory research policies and procedures that are reasonably designed to ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, competitive factors and LIAM’s total revenues including revenues from management fees and investment advisory fees and distribution fees. Click here for more.