Trump Tariff Threats Bow to APAC Rate Decisions, WMT and BABA Earnings, February PMIs

Trump Tariff Threats Bow to APAC Rate Decisions, WMT and BABA Earnings, February PMIs

Talking Points:

• Trump tariff threats continue hot and heavy, but they are not unsettling the market as they have previously
• The eighth week of the year is historically known for a US holiday liquidity dip and a curb on top acute event risk, which impacts seasonal risk asset expectations
• Top scheduled releases this week includes RBA, RBNZ and PBOC rate decisions; Walmart vs Alibaba earnings; and the February developed world PMIs

We are heading into a week that is historically ‘light’ for market activity. The eighth week of the year typically does not host the upper echelon global macro releases nor the top four central bank rate decisions, and it most years hosts the United States’ President’s Day holiday (Monday) which is an inherent curb of liquidity. In fact, we can see the impact of this fundamental and participation restriction in the historical averages for the S&P 500.

Chart of Average Weekly S&P 500 Performance and Volume (Daily)

 

Source: John Kicklighter, TradingView

 

The index has averaged a modest contraction in the eight-week stretching back the past century while volume suffers one of its biggest slumps outside of the year-end holiday period and Independence Day / ‘Summer Doldrum’ week. If we add to this statistical mix the market’s fast acclimation towards President Trump’s aggressive trade threats, there is a narcoleptic-like pull towards the complacency that has push the US indices back on the verge of fresh record highs. That said, volatility can stir in pockets of the market and sparks do eventually ignite larger fires.

Calendar of Top Global Macro Event Risk

 

Source: John Kicklighter

 

For global macro themes to monitor over this coming week, central bank activity is one of the more prominent matters for the fundamentally-minded. We are still a few weeks out from the FOMC, ECB and BOJ; but we are looking at an update from the other major APAC policy authorities. Starting sequentially, the RBA (Reserve Bank of Australia) is expected to cut its benchmark rate by -25 bps to 4.15 percent Tuesday morning. It would be the first cut in the cycle, but no major commitment to a sustained dovish leg is expected – and the Aussie Dollar seems confident of that view. The following day, the RBNZ (Reserve Bank of New Zealand) is seen cutting its benchmark rate for the fourth time in half a year, by another -50 bps to 3.75 percent.

Chart of AUDUSD Overlaid with RBA-FOMC Spread and AU-US 2-Yield Spread (Daily) (Daily)

Source: John Kicklighter, TradingView  

That would bring the full easing in this nascent cycle to 175bps, but that is also a hefty expectation attached to a sizable cut. That could make it more likely to ‘impress’ if they are merely ‘not as dovish’ as afforded for in market discounting. Finally, on Thursday morning, the PBOC (People’s Bank of China) is projected to hold course on its 3.1 percent 1-year loan prime rate. Despite being the target of Trump’s trade-ire and struggle to provide an even economic backdrop, the Chinese authority seems keen to avoid this traditional policy lever to afford economic leverage.

 

Side stepping some US housing data, European sentiment reports and Japanese trade; another theme that elevates to macro-worthy this week is the earnings calendar. We are not yet to the last of the Magnificent 7 – Nvidia reports on February 26th – instead we will get a look into a more macro-oriented theme versus the speculatively-favored. In this case, we are going to be gauging the health of two important consumer groups: the collective in the United States and China.

The largest consumer-oriented corporation in each country – Walmart and Alibaba – are due to report on their respective quarterly earnings within a half hour of each other starting at 11:30 GMT Thursday. There is a significant level of scepticism in Chinese economic data as well as US GAAP accounting, but the latter is considered more consistent, all else held equal. This could offer a meaningful comparison between these two economies when we otherwise see measures like quarterly GDP or monthly trade updates summarily disregarded.

Chart of USDCNH Overlaid with Walmart-Alibaba Ratio (Weekly)

 

Source: John Kicklighter, TradingView

 

Finally, towards the end of the week, we return the most fundamental of themes for economy and market: growth. We have cleared much of the developed world’s advanced Q4 GDP updates, and now find ourselves focusing on more timely measures of activity. We are not expecting the next update to the global growth forecast from the IMF – the World Economic Outlook – until April; so the interim mile markers will be the monthly PMIs. The major, developed economies February updates are due on Friday.

While there will be interest in some manufacturing sector readings – as in the US with the drive to restore factory jobs through tariffs – most of these countries are more heavily weighted towards services. It is worth evaluating each country’s update individually, but there is value in assessing the United States’, Eurozone’s, United Kingdom’s and Japan’s readings in aggregate for a global view. A hard collective steer across these economies could tangible swing global investor confidence.

Chart of Major Economies PMIs (Monthly)

  

Source: John Kicklighter, TradingView

 

--- Written by John Kicklighter, Global Head of Content