Developed equity markets had a volatile week on the back of the release of April’s Federal Open Market Committee meeting minutes. Despite the minutes having a more hawkish tone than expected by the investment community, after a strong end to the week equity markets finished modestly higher than where they started. The Vix index finished the week lower. U.S. treasury prices moved modestly lower leading to a slight rise in yields over the week, however, a 10 year yield of 1.85% remains marginally lower than where it started the year. The movement in the US dollar is constantly in focus, particularly for its impact on the emerging markets, rose for the third week in a row.
The performance of the US dollar and the Japanese yen dominated discussions at the latest G7 meeting as the US accused Japan’s central bank of manipulating its currency. This does feel a bit rich coming from a country that engaged in 3 rounds of quantitative easing measures, swelling the US treasury balance sheet by over $1.5tn.
The price of oil, which has seen quite a recovery from the lows earlier in the year, currently trading just below $50 a barrel had another good week finishing 4% higher despite the stronger dollar. Concerns over supply disruptions as Libya suffers internal conflict and Canada feels the effect of the terrible fires keeping a floor on prices.
US equity funds continue to see outflows as investors continue to fear equity markets in favour of fixed income funds. Exchange traded funds also saw equity outflows.
Looking to the week ahead, for the US, at the start of the week the current strength of manufacturing will be in focus. On Monday we get Markit’s flash Purchasing Managers survey for May. Forecasts are for a small pick up from the previous month’s reading of 50.8. We highlight these survey’s as many consider these readings as a lead indicator for the economy. A reading below 50 suggests a shrinking manufacturing base. On Wednesday we get similar releases for the services sector and a composite reading of the pair. The big two announcements for the week will come on Thursday, with the release of April’s durable goods orders. Analysts are forecasting a small pick up from the month of March. Friday sees the release of the second estimate for the first quarter GDP. After last week’s minutes preparing the market for another move on US rates in the coming months, these data points will be scrutinised more than usual by analysts.
For the UK economy the Brexit debate will continue to take centre stage, on Thursday we get the second estimate for UK GDP. Forecasts are for the economy to have grown at 0.4% in the first quarter, a small downgrade to the first estimate.
It is a busy week for the euro area macro data, as with the US there is a release of Markit’s flash Purchasing Managers Surveys for the month of May. On Monday we also get the euro area consumer confidence flash reading for May. During the week we receive a couple of German economic sentiment surveys. On Tuesday the ZEW survey followed on Wednesday by the Ifo business and current climate reports.