The U.S. is due to ink the long awaited Phase 1 trade deal with China this week, which hopefully will allow the world’s two largest economies to move on from a trade war which has roiled financial markets and acted as a drag on global growth for the past 18 months. Fourth quarter earnings season is due to begin in earnest on Tuesday, with banks reporting. Meanwhile, investors will also tune into economic data, including Chinese and German GDP for updates on exactly how much global growth cooled in 2019. Here’s what you need to know to start your week.
U.S. and China to bury the trade hatchet
Chinese Vice Premier Liu He will visit Washington to sign the Phase 1 trade deal with the U.S. on Wednesday, which will deescalate the trade war between the two sides. Under the terms of the interim deal China has pledged to increase imports from the U.S. in exchange for the suspension of the threatened December tariffs on Chinese imports to the U.S. and a partial rollback of the September tariffs.
But no deadline has been set for the next phase of talks to begin and if either side fails to abide by their commitments trade tensions could flare up again.
The extent of the fallout on China’s economy may be visible in upcoming data this week. Trade figures on Tuesday are expected to show an increase in both imports and exports. And December's GDP reading due on Friday is forecast to show growth of 6%.
Bank earnings in view
U.S. stock markets keep powering to record highs, shrugging off bad news, whether on politics or company earnings. And that's unlikely to change after the fourth-quarter earnings season, which U.S. banks will kick off from Tuesday.
Refinitiv analysis suggests S&P 500 companies had a dismal quarter, with earnings-per-share falling 0.6% -- the second straight quarterly decline. That's partly down to a strong quarter a year ago, but also to the drag from energy and industrials, which have borne the brunt of the trade war.
Banks may do better. JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and Wells Fargo (NYSE:WFC) report in the next few days, and forecasts are for 11.2% earnings growth across the sector. Wall Street's bank index leapt 36% last year, even outgunning the gains by the underlying S&P 500.
U.S. data; Fedspeak
The latest U.S. inflation figures are expected to remain broadly in line with the 2% inflation target, while retail sales numbers from the holiday season will be closely watched after anecdotal evidence indicated that department stores had a tough holiday season period.
Investors will also have the opportunity to hear from a number of Federal Reserve officials after the quiet holiday period.
Boston Fed President Eric Rosengren and Atlanta Fed head Raphael Bostic will both discuss the economic outlook in appearances on Monday. Kansas City Fed President Esther George is due to deliver remarks on Tuesday, while Patrick Harker of the Philadelphia Fed and Robert Kaplan of the Dallas Fed are both due to make appearances on Wednesday.
Busy week For U.K. data
It will be a busy week on the U.K. economic calendar with figures on fourth-quarter growth, trade, industrial output, retail sales and inflation all due to be released. The data will be closely watched after Bank of England Governor Mark Carney last week promised a "relatively prompt response" if economic weakness persists.
Carney himself won't be overseeing any policy changes -- January's meeting is his last as BOE governor.
Britain is due to leave the European Union on Jan. 31 amid major uncertainty over whether 11 months will be long enough to reach strike a trade deal. Already dismissed by the EU as "impossible", the tight deadline may limit any rebound in economic growth and investment.
Germany is to release figures on 2019 GDP growth on Wednesday, after a year that saw the Euro Zone’s largest economy weighed down by a manufacturing recession. Economists are forecasting annual growth of 0.6%, which would be the slowest rate of growth by the German economy since 2013.
On Thursday, the European Central Bank is due to publish the minutes of its December monetary policy meeting -- the first one to be chaired by new President Christine Lagarde. (investing)