S&P 500, FTSE 100 Outlook: Trade War Deadline, Brexit Vote, Fed Powell Testimony in Focus
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S&P 500: Critical US-China Trade Talks as Deadline Nears
S&P 500 saw a modest 0.3% gain in a somewhat subdued week for US equity markets, where markets participants had been somewhat indecisive with global uncertainties continuing to cloud the economic outlook.
Next week we see focus fall on the US-China trade talks as we near the March 1st deadline. As it stands progress towards reaching a deal continues to be made. However, with issues remaining, it is unlikely that a deal will be made, but rather an extension to the tariff deadline. Given the continued upside in equity markets, this may be somewhat priced in already, as such, key resistance at 2800 for the S&P 500 may hold for now.
The semi-annual testimony from Fed Chair Powell will of course garner attention for the equity markets. As a reminder, the main sticking points from the Fed meeting minutes were that the central bank will be patient with rate hikes, while the balance sheet unwind may come to a halt by the year-end. However, judging by Fed Fund future pricing, markets may be somewhat complacent by calling an end to the hiking cycle and implying a 55% likelihood of a cut by Jan 2020. As such, commentary from the chair suggesting that the Fed could continue to raise rates if the economy evolves as he expects, may spark a pullback across US equity markets.
Elsewhere, US data will also grab some attention, particularly the ISM Manufacturing PMI report. After this week’s Philly Fed Business Activity data, in which the headline figure heavily missed analyst estimates, falling to its lowest level since May 2016, risks are skewed to the downside.
S&P 500 Price Chart: Daily Time Frame (Aug 2018 – Feb 2019)
FTSE 100: Brexit Continues to Dominate
The FTSE 100 underperformed relative to its major European counterparts, with the index notably softer having failed to make a firm break above topside resistance at 7250. Brexit is undoubtedly the main theme for UK assets in the upcoming week, whereby PM May will make a statement on February 26th on the progress (or lack of) regarding Brexit talks. Consequently, another vote may take place on February 27th which could give parliament another opportunity take control of the Brexit progress and force an article 50 extension. As such, UK assets are likely to see choppy price action amid the abundance of headline risk.
FTSE 100 Price Chart: Daily Time Frame (Feb 2018-Feb 2019)
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--- Written by Justin McQueen, Market Analyst
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