They say that investing isn’t an exact science, however, this week saw both science and economics come to the fore. Monday marked the anniversary of the formation of the periodic table, a major breakthrough in the field of chemistry. Created 150 years ago by Dmitri Mendeleev, organising the elements in columns to place them into a meaningful pattern that repeats on the basis of chemical properties, the original format still remains today. From Hydrogen to Oganesson, the table lists the complete range of elements discovered so far and still has room for more.
It was with some irony then that global markets rejoiced this week as the US Federal Reserve removed the element from their speech that investors fear the most, that of surprise. With mixed messages from America’s central bank characterising 2018, the Fed held interest rates steady on Wednesday and vowed to be patient with future hikes. This latest communication provided what many economists consider the clearest signal yet that a four-year tightening cycle may potentially be coming to an end. Speaking to reporters after the Fed’s latest two-day policy meeting, Chair Jerome Powell commented that “the situation now calls for patience…I think it’s the right time, I feel strongly that it is.” His words acted like lithium to markets, with a calmed S&P500 jumping 1.5% almost instantly. The tech-heavy NASDAQ also made significant gains as Apple released strong guidance on the rest of its service business, while social media giant, Facebook, exceeded forecasts for revenue and earnings for the fourth quarter, aiding the US market to its best start to the year since 1987.
Such strong rallies were not confined to US benchmarks as the domestic FTSE 100 and 250 also hit monthly highs. Britain’s blue-chip index rose throughout the second half of the week to record its best month since last April, as UK lawmakers voted down a proposal in parliament to prevent a potentially chaotic “no deal” Brexit, causing sterling to sink like lead. The FTSE 100 is often boosted by a weaker pound as many of its constituents are multinational conglomerates who earn their revenues in foreign currencies. Mid-caps were also on course for a golden month, their best in five and half years, buoyed by strong corporate earnings and talks of M&A activity.
Over in the Eurozone, there were more woes for their third biggest economy – Italy. Having only just fallen into a recession in late 2018, data showing worsening business conditions on the back of a decline in production led investors to sell out of Italian government debt, pushing yields higher. Italian banks were also under heavy pressure, dragging down the EuroStoxx index.
On the economic data front, the US Bureau of Labor Statistics released Non-Farm Payroll and Average Hourly Earnings numbers on Friday. Considered invaluable to the US Fed when considering future rate policy, platinum numbers showed that the US economy added 304,000 jobs, far more than consensus forecasts of 165,000.