Bring me sunshine, bring me laughter, bring me joy

It was another decent day for equity markets around the globe. The S&P and the FTSE100 are continuing their recent winning run, as April’s concerns were washed away by the seasonal showers.

Ahead of a deluge of UK economic data today, which will give us a fresh window into the health of the UK economy.  UK GDP is the headline grabber, surpassing expectations and growing by 0.6% in the first quarter. Yesterday’s UK Jobs survey recorded falling employment and wage growth weak enough to help the Bank of England, at the monthly meeting of the MPC, to give further hope that the first cut in UK interest rates could be as soon as next month. Two committee members voted in favour of a cut this month, up from one last month, indicating a change in sentiment in the committee. The pound did little on the news, as did the gilt market. However, the 2-year yield fell back below 4.3%.

The pendulum for the direction of US interest rates has swung from both extremes since the start of the year. Another sign yesterday that the employment market is showing signs of weakness is once again starting to move that pendulum back towards the Fed, possibly acting before December. June or July, a possibility a few months ago, became unlikely but could be back on the cards. Next week, we get the April Consumer Price Index; signs of a pickup in the deflation story could excite bond markets.

Equity markets are focussing less on when the cuts start and more on the fact that the interest rate cycle has peaked and that the path in the coming year is a downward one around the developed world. In that scenario, equities are the place to be.

The past month has seen a change in leadership. Who would have guessed that, just as Coutts Bank announced the decision to withdraw its investment funds from UK equities, the UK FTSE 100 has led the charge? It is up over 5%. The laggards, the Nasdaq and the S&P 500, gained just over 1%. Some have called Coutts’s decision a wake-up call for the Chancellor, a call to arms for the government. When the Chancellor announced the introduction of a UK ISA in the budget statement, we argued that it was a daft idea that would not generate any additional investment in UK equities. If the Chancellor really wanted to stimulate investment in UK equities, remove stamp duty. That would have had a far more positive effect. Coutts’s decision feels like getting out when the pain gets too great, but they won’t be the first fund manager to do that.