The Week Ahead: GOT takes over from Brexit (kind of)

Another season of Game of Thrones, the television series du jour is imminent and to those (like us) not particularly familiar with the blockbuster show, it is variously described as “a web of alliances and conflicts...vying to claim the throne or fighting for independence from it; the last descendant of the ruling dynasty, who has been exiled and is plotting a return to the throne; and finally defending the realm against the ancient threats of the fierce peoples”. Some might say that it is a neat parable of our Brexit times with the infighting, posturing and scheming that has already occurred, and which will probably continue!

It’s been another tumultuous week for the Brexit process with much midnight oil being burnt in Brussels.  IMF’s Christine Lagarde successfully summed things up after the UK was granted a compromise six month extension when she said this delay avoids the ‘terrible outcome’ of a no-deal solution, but does not lift the uncertainty over the final outcome. There are still so many possible conclusions that we can yet again go back to some of the options we outlined a couple of weeks ago. We may see a general election, another referendum though time is tight or even more indicative votes. The betting markets have a PM departure around July ahead of the Conservative Party conference and yet if the landscape doesn’t actually change that much, stockpiling and no-deal risks will ratchet up once more into the new exit date.

More importantly, financial markets didn’t blink at all with cable printing the narrowest range week this year, up a measly 0.25%. The hope is that traders can move on as markets are likely to focus on things other than Brexit now. In which light, UK data this week may take on enhanced significance given the lowered risks of a hard Brexit and pushed out timelines. Wage growth released on Tuesday is expected to remain strong, at post-crisis highs of 3.4%, a rate which would normally pressure the BOE in to raising interest rates. Wednesday’s UK CPI should tick higher to the Bank’s 2% inflation target whilst the following day’s retail sales are expected to slow after last month’s large beat, rounding off a relatively strong quarter. 

With China-US trade talks continuing in the background, Chinese Q1 GDP arrives on Wednesday (6.2%-6.3% expected) and will likely attract more attention than usual as the Chinese slowdown has been one of the main catalysts of the slowdown across the globe. However, we note as with all GDP prints that they are backward looking and headlines are probably already written about ‘China’s lowest growth in three decades’. Slowing percentage growth rates are natural for larger economies but it doesn’t mean that the economy necessarily loses its influence.

Finally, earnings and the state of the US consumer will be the key focus across the pond, in this trading abbreviated Easter week. In the wake of beats by JP Morgan and Wells Fargo, the Q1 earnings season is off to a better than feared start. Remember that the S&P 500 is forecast to post its first earnings decline since 2016. Retail sales are expected to rebound after the government shutdown and polar vortex distortions in previous months. In fact, some economists are expecting the fastest monthly rate of the post-GFC period.