Last day of April

Equity markets continued the recent buoyant run into the last day of April. The Federal Reserve, as expected, tapered the bond purchase program another $10bn, taking its monthly purchases down to $45bn. Wednesday delivered several pieces of macro news that will probably make headlines in the financial pages on Thursday morning.
The eurozone consumer price inflation rose to 0.7% this month, from 0.5% in March, surprisingly expectations were for a sharper increase to 0.8%. The euro rallied marginally against the US dollar, but remains close to the level it has held for the past couple of months. What may be of more assistance to the ECB as it looks to next week’s rate decision is that Germany’s harmonised consumer price inflation index came in at 1.1%, below economist’s expectations of 1.3%.
The US reported 0.1% GDP growth for the first quarter of 2014. This number was far weaker than expected, but will be dismissed by economists as a distorted figure due to the weather problems in the first quarter.
The FT reported today that the US is on the brink of losing its status as the world’s largest economy to China. The US has been the global leader since taking over from the UK in 1872. Research from the International Comparison Program coordinated by the World Bank considered the real cost of living and purchasing power as the best way of comparing the size of different economies. To understand how the Chinese economy has grown relative to the US over the past decade, in 2005 the Chinese economy was 43% of the US economy, whereas in 2011 it was 87%. According to the IMF the large difference in the growth of the US economy (7.6%) over the past 3 years against that of the Chinese economy (24%) will put China ahead of the US this year. 
Wednesday’s eurozone inflation data will probably dampen expectations that the ECB will move on interest rates at the next meeting.  According to todays FT, France will call for action to lower the value of the euro after the European parliamentary elections next month. France has battled against Germany for a looser monetary policy by requesting the ECB to aid the recovery of both France and the Eurozone’s economy. The ECB may have been hoping that the Federal Reserve tapering of its bond purchase program would have help weaken the euro against the US dollar; this does not appear to be occurring. We repeat the view that the ECB will gain little by waiting until June to stimulate the economy and will move at next week’s meeting.
The month of April has been good one for equity investors as the FTSE 100 climbed back into positive territory for the year and the S&P 500 is once again within a few points of its all time high. Considering the various hurdles the markets have faced, one would suggest performance of equities has been encouraging so far this year. 

Posted on May 1, 2014 .