A mixed week for capital markets, American equity prices kept climbing, European ones struggled. The FTSE 100 fell almost 1% on the week, as the Dow Jones Industrial Index completed, on Friday, its 11-straight day of record closes. We continue to get mixed signals coming from various asset classes, to the reflation story. The recovery in commodity prices, which has helped underpin the sense of economic optimism, is showing signs of pausing for breath. The Reuters commodity index fell on the week and is now close to where it started the year. The price of Brent crude seems to have become stuck around $55 a barrel. The one commodity that does appear to be in demand is the world’s “teddy bear”, gold, up again in the past week and almost 10% from the start of the year. The US dollar had a good week against its basket of currencies, however fell slightly against the Japanese yen. US bonds continued their recent rally, yields on the 10-year US treasury closed the week at 2.31pct.
These possible signs of caution from other asset classes comes after a week in which the new Treasury Secretary offered something in the way of a time line for the tax reforms, but failed to give much away in the form of detail. The minutes of the last Federal Reserve meeting continue to prepare the markets for further rate rises, however March is starting to look less likely.
On the more positive side, economic data around the globe remains robust. The past week’s release of February’s flash Purchasing Managers Surveys for both the US and Eurozone economies, reported index readings comfortably above 50. This would suggest these two economies are continuing to expand. The second estimate for the growth of the UK economy at 0.7%, slightly ahead of the previous estimate.
The latest EPFR fund flow data, as reported in the Financial Times, painted a picture of positive institutional flows into European equities. On the other hand, retail investors, who are traditionally considered the last to join the equity party, recorded the 16th week of equity outflows. This would again suggest equities are still not completely loved by all.
Looking to the week ahead, Donald Trump, who may not have much a relationship with the global press, but never the less keeps them busy, is likely to do so again on Tuesday as he delivers his televised address to a joint session of congress. Hopes will be that he may offer more than Mr Mnchin did this week on his tax plans.
It will be another busy week of US data. On Thursday, the Federal Reserve releases its Beige Book. This provides anecdotal evidence on the state of the US economy from 12 regional branches of the Federal Reserve. We also get the second reading of 4th quarter GDP for the US economy, expectations are for a small uptick from the first estimate of 1.9%.