Market Update

While the media's attention remained fixated on Brexit, the market was more engrossed in this week's Federal Reserve monetary policy meeting and the progress of US-China trade talks.
I must say, I found the outcomes of the Fed's first meeting of the year quite favorable. As anticipated, the Fed Chairman, Jay Powell, took an explicitly dovish stance. He hinted that the current phase of tightening might be coming to an end, emphasizing the Fed's patience on future moves. Powell even stated that the next move could be either an increase or a decrease in interest rates. This aligns with our long-held belief that this tightening cycle would be one of the most lenient in history. To add to this, the central bank expressed its flexibility regarding the reduction of its balance sheet, marking a departure from their previous stance on unwinding QE.
As for the crucial US-China trade talks, although no significant breakthrough occurred, there was enough progress to instill confidence that a deal could be struck. China agreed to significantly increase imports of US crops, services, and energy while also cooperating on intellectual property rights and technology transfers. The final deal now hinges on a meeting between President Donald Trump and his Chinese counterpart, Xi Jinping, although a date has not yet been set.
Recent data from China indicating a slowdown in its economy and lackluster earnings from several US companies such as Caterpillar and Nvidia highlight the urgency for both sides to secure a trade agreement. Given Trump's past willingness to compromise, I believe he will eventually soften some of his demands and expedite a trade deal with China.
In the UK, Parliament was once again in turmoil on Tuesday (January 29, 2019) due to the pivotal Brexit votes. Following MPs' approval to remove the controversial Irish backstop from the Withdrawal Bill, Prime Minister Theresa May is set to return to Brussels for renegotiations. Despite initial skepticism, I believe this vote strengthens May's position. The EU now faces a choice: engage in discussions about the backstop to avoid a damaging no-deal Brexit (which would be detrimental to both the EU and the Irish economy) or risk MPs rallying behind May's original Brexit plan to avert a no-deal exit.
Amid the heightened risk of a no-deal Brexit, the pound slightly weakened this week. However, losses were limited, given the increasing likelihood of a Brexit delay. A weaker pound is beneficial for the FTSE-100, as many of its constituents are multinational companies with substantial exports and overseas revenues.
Looking ahead to the next week, several major releases warrant attention. In the UK, there's a Bank of England monetary policy meeting and inflation report, while in the US, Q4 GDP and retail sales data will be released. Additionally, President Donald Trump is scheduled to deliver his State of the Union address on Tuesday (February 5, 2019).