Still, the more things change the more they stay the same

 As we look forward to what the forecasters suggest will a sunny bank holiday weekend, the macro news flow over the past few days reports a picture that seems consistent with a world that we have lived in since the recovery in 2009. On Wednesday evening the release of the minutes from the last Federal Open Market Committee meeting reported that despite the recent weaker than expected economic data expectations remain for an improvement as the year progresses. The members of the committee all but removed the likelihood of the June rate rise.

On Thursday morning we received the latest estimate for Chinese manufacturing, HSBC’s purchasing manager's index came in at 49.1, slightly ahead of last month's 48.9 but below expectations of 49.3. The Shanghai composite index of leading Chinese companies rose on the news, as expectations were increased of further monetary stimulus.  The latest Markitt purchasing managers survey for the euro area, as was the case for the HSBC report, came in slightly below analyst expectations.

Mario Draghi stated in the past week that the ECB might well step up the bond purchase programme in the months of May and June to compensate for a potential lack of liquidity in the later summer months.

The Greek tragedy rolls on, once again German politicians kept the pressure on the situation ahead of the weekend EU summit in Latvia. Wolfgang Schauble was asked if he stuck to his view that the Greeks will avoid defaulting on their debt, his reply "he would have to think hard before repeating this in the current situation". One could argue Greece has effectively defaulted on its debt for the second time, in the past week Greece needed to borrow from the IMF to repay a loan to the IMF. The question appears to remain not if they will default, but whom they will ultimately default to? Leading on from that does a default necessarily mean expulsion from the euro? The ultimate answer may well be default without expulsion from the euro.

Companies have been as a rule over the past 7 years done quite well on a diet of low economic growth, low inflation and liberal monetary policy. As we have seen over the past few days, inflation remains below expectations, economic growth is real but moderate and central bankers statements suggest monetary policy remains supportive. Stock markets have continued to climb higher in this environment, with bouts of sharp corrections. One should recognise that events may change the course markets but if companies and markets have managed to perform in this environment over the past few years, it would seem logical, at least for a little while yet they should continue to do so

Posted on May 21, 2015 .