A good week for equity markets, the FTSE 100, the S&P 500 and the euro first 300 all climbed higher as the markets appear to be taking an imminent nudge higher in US interest rates in their stride. This week’s rise takes most developed equity markets back into positive territory for the year. A combination of robust US economic data, another Greek deal, the remain in vote taking the upper hand according to the polls, and the oil price stabilising around $50 all helping support equities. Sell in May and go away has clearly not been profitable so far. The only point of caution could be the Dow Jones transport index fell through the month of May. Despite this improving performance of equity markets funds continue to flow out from equities, another $9bn in the past week, the love hate relationship with equities continues.
Over the month two year US treasury yields, considered the most sensitive to interest rate sentiment, rose from 80bp to 90bp. However, ten-year treasury yields remain little changed over the month. The dollar continues to rally, closing the week at a two month high against its basket of other currencies.
This week ahead will be a shortened one due to the Monday bank holiday, but it will still be a busy one for macro data. As usual at the start of the month we get the release of the previous months Purchasing Managers surveys. For the UK Markit’s Manufacturing index reading is on Wednesday, forecasts are for a further dip below 50 from April’s reading, to 49.2. This is followed on Friday by the services reading, forecasts are likewise for a fall from April’s reading but for the index reading to remain above 50.
It’s a comprehensive week for US macro data, from consumer to housing, purchasing manager’s surveys as well as employment data. Obviously all US macro data will now be scrutinised to see whether the market comes even more convinced the Federal Reserve will move in June or wait until July.
Likewise, is a busy week for European economic data, on Monday we get a raft of economic sentiment data for the region including business confidence. We also get the reading for German inflation for the month of May. Expectations are for a small jump in the month on month rate. Any signs that inflation is picking up faster in Germany than the rest of the region could add further strains between the Bundesbank and the ECB. On Tuesday we get unemployment and inflation for May for the entire region. Expectations are for a month on month fall of 0.1%, after a fall of 0.2% in the previous month. The main focus will be Thursday for the monthly interest rate decision, no change to rates is expected. What is often is the post decision press conference.
Developed equity markets finished the week at the top end of trading ranges that have held over the past couple of months. Bank of America believe the negative equity flows are close to giving a buy signal for equities.