Testing times from Beijing to Wall Street
* Market bounce faces data, earnings test
* China GDP will set tone for the week
* ECB, BoJ on hold amid gloomy outlook
By Francesco Canepa
FRANKFURT, Jan 18 (Reuters) - If you were surprised by this
month's bounce in global stock markets, next week may tell you
if you should join in or stay out.
Chinese output data on Monday will set the tone for a week
that also sees the first policy updates of the year by the
European Central Bank and the Bank of Japan against the backdrop
of a continued global economic slowdown.
In the United States, results from blue-chip companies
including IBM will give Wall Street traders something to
chew on while officials in Washington are engulfed in the
longest ever U.S. government shutdown and unpredictable trade
negotiations with Beijing.
Investors are running into the new week at full speed, with
an index of global stocks up by more than 5 percent since the
start of the year.
They have been lured by reassurances that the Federal
Reserve will think twice before raising rates this year, hopes
of a trade truce between the United States and China, and a
perception that slower growth has already been incorporated in
share price and economic forecasts.
"For this rally to continue investors need to become more
comfortable about the outlook for global growth," Bank of
America Merrill Lynch strategists said in a note to clients.
China's fourth quarter GDP data will show whether the bar
has been set low enough for the world's second largest economy.
This is expected to have grown by 6.4 percent in the last
three months of 2018, the slowest pace since 2009, as domestic
demand weakened and exports were hit by U.S. tariffs.
"Our base case is that data will stabilise," economists at
Like many of their colleagues, they expected monetary
stimulus and tax cuts from Beijing despite repeated denials from
With the latest data showing Chinese imports and exports
plunging, traders were also betting Beijing would eventually
blink in its trade standoff with Washington.
"We continue to believe China will strive to avoid a
full-blown trade war with the U.S.," Deutsche Bank economist
Zhiwei Zhang said.
Chinese Vice Premier Liu He will visit the United States on
Jan. 30 and 31 for another round of trade talks.
Elsewhere, the European Central Bank and the Bank of Japan
are faced with the difficult task of delivering downbeat
messages under an increasingly thin veneer of optimism.
The Bank of Japan is expected to cut its inflation forecasts
on January 23 but maintain that the country's economy will keep
expanding moderately, sources have told Reuters.
A day later, the ECB, which last month cut its own growth
and inflation projections for this year, will be hard pressed to
defend its assessment that the euro zone's economy is still
"Risks have shifted to the downside but the ECB might not
want to admit it," UBS economist Reinhard Cluse said.
So far, neither the ECB nor the BOJ is expected to take
action, having already bought trillions of dollars worth of
bonds and pushed interest rates below zero.
On Wall Street, investors are bracing for possibly gloomy
updates from IBM and other U.S. blue chips after disappointing
figures from Apple and Tesla.
Finally, the partial U.S. government shutdown will enter its
fifth week amid a political standoff over President Donald
Trump's demand for $5.7 billion to help fund a U.S.-Mexico
While shutdowns have historically had little or no impact on
long-term economic growth, this will likely cause delays to the
release of economic reports such as retail sales, international
trade, GDP, and PCE inflation, HSBC said.
(Reporting By Francesco Canepa
Editing by Gareth Jones)
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