Another month ends and so we enter May, the month we are supposed to sell and go away. Empirical evidence suggests this is not a good plan traditionally, whether this year will be any different we shall see. The Federal Reserve announced pretty much nothing at their meeting on Wednesday evening. Interest rates were unchanged, as was the rhetoric. There were some comments to the effect that the Fed would be happy to let inflation rise above the 2% target, suggesting that they remain cautious about raising interest rates too quickly in the coming year.
There was little move in the bond market post the meeting, however the short end of the curve caught a modest bid as the Fed were seen to be less hawkish than anticipated. The equity market took a breather in the US. The FTSE 100 may have had a recent boost from the weakness in sterling, however the S&P 500 continues to trade close to the levels it consolidated at post the correction at the start of the year. That consolidation will only last so long, at some point it will start to climb higher or it may look for support lower down.
The US equity markets fell back post the Fed statement, this is being put down more to the start of the trade talks between China and America rather than the consequences of the Fed announcement. The feeling was that the early comments from China were negative, perhaps this was to give a sense of under promise and over deliver.
We did point out at the start of the week that the euro-area was releasing its estimate of first quarter GDP and the latest inflation data. Both suggested something of a weakening. Inflation dipped back to 1.2% and quarter on quarter growth was just 0.4%. This slowdown could hardly be that unexpected as it mirrors the data from across the US and the UK. On Thursday the latest service sector data reported a slow down for the third straight month in April.
What it has put on hold is the possibility the ECB will look to start cutting QE back before September. The Bank of England are less likely to raise rates in May and more likely the Fed will only raise the twice more this year not the three some were going for.
Goldilocks may reappear, low inflation, modest growth and accommodative interest rates and time will tell if the equity market still likes that brand of porridge?