Central bankers continue to work hard at managing interest rate expectations to the investment community. We had a dovish statement from a central bank as it raised interest rates, and a hawkish statement from a central bank that left rates where they were. The developed markets of the US, Europe and the UK all finished the week higher as the Federal Reserve boosted equities with a statement that promised gentle rising rates, accompanying an improving economic outlook. The Bank of England continues to leave itself little room should the UK or global economy slow in the coming months, or inflation continue to pick up.
The Vix index finished the week close to where it started it, and remains close to historic lows. US treasury yields fell as prices rose after the more dovish comments from the Federal Reserve, and likewise the US dollar fell against its basket of currencies. There is little action in below investment grade bonds as yields remain close to recent lows.
Despite these record highs in US markets, retail investors remain wary, the AAII investor sentiment survey recorded another week when bullish investor sentiment remains below historic average.
UK gilts hardly moved on the Bank of England statement, however sterling did recover a little post the Bank’s slightly more hawkish comments.
Looking to the week ahead the two-day meeting of the G20 finance ministers continues, as America seems keen to rattle cages. According to Germany’s Finance minister they went to great lengths to settle America’s position on free trade and protectionism with no luck. In the end the communique dropped the language from last year to “resist all forms of protectionism”. Greek debt position will be amongst the topics covered on Monday as, according to the Financial Times, the Conservative side of congress is encouraging Donald Trump to block the IMF’s participating in the next Greek bailout. One gets the sense the IMF are reluctant to help out as it is. On Monday Greece and its lenders meet as the pair continue to try and find agreement on a series of austerity measures for Greece to continue to benefit from bailout funds.
On the macro front the focus for the UK is likely to be Tuesday when we get the latest inflation data. Core inflation (excluding food and oil) is forecast to rise to 1.7%. The year on year inflation rate is expected to climb above the 2% target rate. We also get Producer input and output prices. Input prices have risen sharply in the past year but companies have not been able to pass on these higher costs.
As for Europe, aside from the eurogroup meeting, Markit research release their flash estimates for March’s Purchasing Managers surveys for the region on Friday.