“Difficult to see; always in motion is the future.” Yoda

Stocks around the globe have focussed primarily  on the marginally more dovish stance that the Fed appear to be taking on inflation. The front page of the Financial Times cheers that the FTSE 100 reached an all time high on Friday. Friday’s jobs report may give members of the Fed a reason to maintain their public stance that the work is not “yet done” on inflation. The continuing strength of the employment market is reinforced by the latest jobs report that over 500,000 jobs were added in January. The US unemployment rate fell to the lowest level since 1969. The US dollar rallied, and longer dated yields rose steeply. The US yield curve continues to send warning signals of an impending economic recession.

Earnings reports seem to be discounted to a larger degree, as three of the FAANGs in the past week, Apple, Amazon and Alphabet, all posted earnings below market expectations. According to Factset earnings research, with just over 50% of the S&P 500, the Q4 year on year decline is 5.3%, a further fall from the negative 5.1% at the end of last week. One does get a sense that stock and bond markets are drawing different conclusions from the same economic data.

After a week when the IMF now referred to our tight fiscal policies as an inhibitor to growth, having not so long ago come out and criticised Liz Truss’s desire to stimulate the economy by reducing the tax burden. The papers were full of her. I told you so articles from Ms Truss. As a result of the recent clamour to reduce the tax burden, speculation is increasing that the poorly thought out increase in corporation tax will be scrapped in March, and so it should be. At a time when we want to support business and encourage outside investment, this is a terrible proposal.

Looking to the week ahead, geopolitical tensions resurfacing between China and the US are to blame for a weak start in Asia, and this will spill over into Europe. Jerome Powell is back in the spotlight this week with a speech on Tuesday, where he may well comment on the jobs report. Corporate earnings will continue the week with Pepsi and Disney amongst some of the notable names. It is a quieter week on the economic front.  The University of Michigan’s Consumer Sentiment Index for February, out on Friday morning, will be the highlight in the US. For the UK the end of the week, we get a host of data, including industrial and manufacturing production, along with monthly and quarterly GDP reports.

January was a strong month for stocks, however, it does not feel like we are out of the economic woods just yet.