Markets are starting the week on a positive note. Talk of the trade tariffs being delayed has the Chinese stock market entering a bull market and the US futures are pointing to gains of around 50 basis points (half a percent) at the open. Oil prices are hitting highs for the year on supply cuts and optimism. Extending the increase in tariffs that were due to go into effect is a positive sign that normalization in trade can occur. This boosts the prospects for the economy as well as markets in which a normalized trade relationship with China (and other countries), with the help of an accommodative Fed, will produce steady tailwinds for 2019. This week Reality will test some of these assumptions.
Tuesday will start the week with a 2 day testimony by the Fed chairman. This will provide investors with more clarity on the stance of patience and data dependence for 2019. The US will also announce home prices and Crude oil stocks.
On Wednesday the Euro area announce business confidence numbers which will be important to determining if the slowdown in the region is more pronounced going into the final month for Brexit talks.
Thursday has GDP numbers coming out for many countries (including the US) as well as UK consumer confidence and German inflation. This will be a big check on the European Disunity play we are currently looking at. Whether the eurozone slowdown can be slowed, and eventually reversed, in the current political climate of the region. China's bull market will be tested with data, having the manufacturing PMI coming out. The numbers are expected to come in slightly below 50 (signaling a contraction).
Friday will see US numbers on Income and manufacturing which will be compared to the unemployment and inflation numbers of the euro area. Depending on how other regions report, this could show the US bucking a trend of slowing growth or falling in line (confirming the Fed's recent dovishness). Finalized PMI numbers will come out from the Euro Area which was barely in expansion at the last reading.
In Summary the market optimism we are seeing in the week will have the chance to continue should the week show the Fed taking precautionary steps with policy as US numbers still impress, China starting to see signs of strength in manufacturing to piggy back on trade talks, and the Euro area displaying resilient business confidence in the face of Brexit. If these assumptions seem lofty then we could start to see this Monday rally struggle as the start of March begins.