The State of Markets: “Market Leadership – Switching!”
The rotation theme continued in global equity markets this week. In particular, the key ‘growth heavy’ indices in the US remained within their recent trading ranges (and below their January highs). In Europe, in contrast, several major indices made new local/record highs, including the German DAX, Italian MIB, and Spanish IBEX. Those indices are now up 8-10% YTD, compared to ~+3% for US large cap stocks (see chart below).
The key question, therefore, is: How long will this sector rotation theme last? Is this the start of a sustained leadership switch? Or is it a temporary blip? We outline our views on those questions in recent research (e.g. see this week’s ‘Tactical’ & ‘Strategic’ updates – available below for subscribers, or click HERE for a trial).
Next week’s macro data will be watched closely and includes the US CPI report for January on Wednesday, as well as the NFIB small business report (Tuesday), US PPI (Thursday), and retail sales (Friday). Elsewhere Powell is giving his semi-annual testimony to Congress, first before the Senate Banking Committee (Tuesday) and then before the House Financial Services Committee (Wednesday). As usual, his speech will be the same on both days (but with different Q&A). In the UK there’s a speech by the Bank of England’s Mann (Tuesday), which will be watched closely given her switch from hawkish to dovish at the BoE meeting this week, and the first estimate of Q4 GDP is due on Thursday. Please see below for a full list of next week’s macro data, events, and earnings.
Key chart: Various US/European equity indices (YTD performance, local currency, %)
Upcoming important data/events this week:
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Events: |
The Fed’s Powell testifies before the US Senate Banking Committee (Tues, 3pm) and then the US House Committee on Financial Services (Wed, 3pm), i.e. his Semi-Annual Monetary Policy Report. |
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Monday: |
N/A |
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Tuesday: |
US NFIB small business optimism (Jan, 11am). |
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Wednesday: |
US headline & core CPI (Jan, 1:30pm). |
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Thursday: |
UK GDP (Q4 first estimate, 7am); US headline & core PPI (Jan, 1:30pm). |
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Friday: |
US retail sales (Jan, 1:30pm). |
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Key earnings: |
McDonald's (Mon); Coca-Cola, BP, Macquarie (Tues); EssilorLuxottica, Commonwealth Bank of Australia (Wed); Unilever (Thurs); Hermes International, Natwest (Fri). |
Key Research
Longview on Friday, 7th February 2025:
“Gold & the Heightened Equity Pullback Risk”
As anticipated in last week’s Longview on Friday, we took off risk in both our tactical and strategic recommended portfolios this week.
In the tactical (1 – 4 month outlook), after spending most of last year and the start of 2025 overweight US equities, we moved NEUTRAL on Monday, whilst remaining overweight US Treasuries (& NEUTRAL cash).
In the strategic global asset allocation portfolio (6 months to 2 year timeframe), we are now NEUTRAL equities overall, OW DM sovereign bonds and US high grade credit (as well as gold and silver). Within that NEUTRAL equity weighting, we are OW some thematic equity country bets & UW US large cap. That dialling down of risk was a continuation of a process that started in December last year (when we reduced overall risk exposure from +13pp to +7pp OW).
Key North American macro data & events:
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Events: |
Speeches by The Fed’s Powell testifies before the US Senate Banking Committee (Tues, 3pm) and then the US House Committee on Financial Services (Wed, 3pm), i.e. his Semi-Annual Monetary Policy Report, Hammack on Economic Outlook (Tues, 1:50pm), Williams gives keynote remarks (Tues, 8:30pm), & Bostic speaks on the economic outlook (Wed, 5pm); Bank of Canada releases summary of deliberations (Wed, 6:30pm). |
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Monday: |
New York Fed 1 year inflation expectations (Jan, 4pm). |
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Tuesday: |
US NFIB small business optimism (Jan, 11am). |
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Wednesday: |
US headline & core CPI (Jan, 1:30pm); US Federal budget balance (Jan, 7pm). |
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Thursday: |
US weekly jobless claims (1:30pm); US headline & core PPI (Jan, 1:30pm). |
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Friday: |
US retail sales (Jan, 1:30pm); US imports and exports price index (Jan, 1:30pm); US industrial & manufacturing production & capacity utilisation (Jan, 2:15pm); US business inventories (Dec, 3pm). |
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Key earnings: |
McDonald's, Vertex (Mon); Coca-Cola, S&P Global, Gilead, Welltower, Marriott Int, DoorDash, Ecolab, Carrier Global (Tues); Cisco, Applovin, Equinix, CME Group, Williams, CVS Health Corp, The Trade Desk, Dominion Energy (Wed); Applied Materials, Deere&Company, Moody's, Duke Energy, Airbnb, Motorola, Zoetis lnc, Republic Services, Digital, American Electric Power Company Inc, Howmet (Thurs). |
Fig B: US headline & core CPI (Y-o-Y %)
Key European macro data & events
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Events: |
Riksbank’s Seim discusses the economy (Tues, 5pm); speeches by the ECB’s Elderson in MNI webcast on climate (Wed, 10am), Nagel at OMFIF event in London (Wed, 5pm) & Nagel in Glasgow (Thurs, 5pm); ECB publishes Economic Bulletin (Thurs, 9am). |
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Monday: |
Eurozone Sentix investor confidence (Feb, 9:30am). |
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Tuesday: |
French unemployment rate (Q4, 6:30am). |
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Wednesday: |
Italian industrial production (Dec, 9am). |
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Thursday: |
German headline & core CPI (January final estimate, 7am); Eurozone industrial production (Dec, 10am). |
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Friday: |
Spanish headline & core CPI (January final estimate, 8am); Eurozone GDP & employment (Q4 second estimate, 10am). |
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Key earnings: |
UniCredit (Tues); EssilorLuxottica, Heineken (Wed); Hermes International, Safran (Fri). |
Fig C: Eurozone industrial production (Y-o-Y %)
Key UK macro data & events
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Events: |
Speeches by the Bank of England’s Mann in on "economic prospects" at Leeds Beckett University (Tues, 8:45am), Bailey on if we are underestimating changes in financial markets (Tues, 12:15am) & Greene at the Institute of Directors (Wed, 3pm). |
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Monday: |
N/A |
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Tuesday: |
BRC retail sales (Nov, 12:01am). |
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Wednesday: |
RICS house price balance (Jan, 12:01am). |
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Thursday: |
GDP (Q4 first estimate, 7am), monthly GDP estimate, industrial & manufacturing production, goods trade balance & construction output (Dec, 7am). |
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Friday: |
N/A |
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Key earnings: |
BP (Tues); Unilever, Relx, British American Tobacco PLC, Barclays (Thurs); Natwest (Fri). |
Fig D: UK real GDP (Q-o-Q %)
Key Asia-Pacific macro data & events
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Events: |
Market holiday in Japan on account of National Day (Tues). |
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Monday: |
Australian Westpac consumer confidence (Feb, 11:30pm). |
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Tuesday: |
Australian NAB business confidence (Jan, 12:30am); Japanese M2 & M3 money supply (Jan, 11:50pm). |
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Wednesday: |
Japanese machine tool orders (January first estimate, 6am); Japanese PPI (Dec, 11:50pm). |
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Thursday: |
Australian consumer inflation expectations (Feb, 12am); |
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Friday: |
N/A |
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Key earnings: |
ANZ Holdings, SoftBank Corp (Mon); Macquarie (Tues); Commonwealth Bank of Australia, Recruit Holdings (Wed); Sony (Thurs); Tokio Marine Holdings (Fri). |
Fig E: Japanese M2 & M3 money supply (Y-o-Y %)
Last week:
Longview on Friday, 7th February 2025:
“Gold & the Heightened Equity Pullback Risk”
(Strategic) Global Asset Allocation Alert, 6th February 2025:
“Reduce Risk in Strategic Portfolio a.k.a. US Pullback Risks Rising”
Commodity Fundamentals Report No. 185, 4th February 2025:
“Europe: Another Nat Gas Price Shock?”
Tactical Equity Asset Allocation No. 253, 3rd February 2025:
“Tactically Cautious (for now) a.k.a. Macro Risks Rising; Models Largely on SELL”
Prior week:
Longview on Friday, 31st January 2025:
“Market Correction Risks Rising”
Commodity Fundamentals Report No. 184, 30th January 2025:
"OIL: SELL Signals & Supply Surplus"
Global Macro Report, 27th January 2025:
"UK ‘Debt Death Spiral’: As Bad As Commentators Suggest? A.k.a. What’s The Counter Argument?"