• Positive total mutual fund flows continued over the two weeks ending February 6, extending the streak to four consecutive weeks. Around $19 billion was infused in long-term mutual funds, with bonds the clear beneficiaries.

• While equities saw just $31 million in inflows for the past two weeks, bonds experienced inflows of more than $19 billion.

• A new round of negotiations between China and the U.S. on a potential trade deal started on Tuesday after a previous round ended last week without an agreement. However, both sides said progress was made on several contentious issues.

• Lower fuel prices and slowing economic activity has reduced inflation levels across the board. U.S. consumer price index declined to a 19-month low of 1.6% in January; European CPI declined from 1.6% to 1.4%; and, Britain CPI slipped to 1.8%, the lowest level since January 2017.

• The Bank of England has maintained interest rates unchanged at 0.75%, as inflation pressure is receding quickly and the threat of a no-deal Brexit hangs over the economy. The bank also downgraded its economic forecast for 2019 from 1.7% growth to 1.2%.

• Japan’s economy posted a healthy growth of an annualized 1.4% in the last quarter of 2018, after contracting 2.6% in the prior quarter.

• Germany, the largest economy in the Eurozone, showed zero growth in the last quarter of the year and 0.9% year-over-year, signaling that Europe’s economic engine is sputtering.

• The U.S. economy is continuing to generate an impressive amount of jobs, despite fears of trade wars and economic slowdown. The U.S. economy added 312,000 jobs in January compared with 165,000 forecasted. However, the strong figure for the prior month was revised down to 222,000.

• U.S. retail sales declined dramatically in December, falling 1.2% against expectations of 0.1% growth. The drop is the biggest over the past nine years.

• Vanguard’s total stock market fund (VTSMX), which provides exposure to the entire U.S. equity market, including small-, mid- and large-cap growth and value stocks, is the best performer for the past two weeks, rising 2.87%. The broad market rallied on trade progress between China and the U.S. and the Federal Reserve’s indication it would not raise interest rates.

• International bonds (VTIBX) are again the worst performers for the past two weeks, rising just 0.27%. More than half of the index consists of European bonds, a region that has been seeing economic growth decelerate.

• Sectors were all up.

• Vanguard’s industrials fund (VINAX) led the market gains, despite the fact that the sector is most exposed to an eventual trade war between the U.S. and China. The index rose 5.23% in the past two weeks, likely due to optimism that a trade deal can be reached. If negotiations break down, industrials may see a re-rating.

• At the other end of the spectrum are telecommunications stocks (VTCAX), which moved up by just 1.15% for the past two weeks.

• Foreign funds were mixed.

• Japanese shares (HJPNX) posted a rare rally for the past two weeks, advancing 3.17%. The surge could be attributed to a host of companies announcing share buybacks, as cash-rich corporate Japan faces pressure from activist investors to improve returns. SoftBank Group, Sony and Itochu are among the few companies that announced share repurchases of late.

• Meanwhile, India (WIINX) was the poorest performer from the pack, tumbling 2.06%.

• BlackRock’s small-cap fund (CSGEX) is again the best performer for the past two weeks, gaining as much as 5.34%. Small-cap stocks continued their recovery of late, as the debt-laden sector is expected to benefit from the Federal Reserve’s pledge to keep interest rates steady.

• Commodities (DXCTX) are the worst performers with flat gains.

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The flow picture continued to improve in the February 6 two-week period, although most of the inflows were in bonds. Equities at least did not offset the positive overall inflows. The broad market and industrials led the market, but a China-U.S. trade war may deteriorate the sentiment. Japanese stocks rallied as many companies in the country boosted share buybacks.

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