We flagged the possibility at the start of April that, after the strong start to the year in the first quarter, we may get a few equity market squalls. It was a tremendous month for news, French elections, increased tensions with Korea, Donald Trump completing his first 100 days, if failing to achieve several of his initial election aims. Many leading companies around the globe announced first quarter earnings. Of course, the main news of the month was the announcement of a General Election to be held on the 8th of June. On Friday, we had the latest GDP estimates for the UK and US economy, both failing to make expectations. Brexit carries on a pace, with both Europe and Theresa May continuing to set out their stall.
The FTSE 100 lost ground in the month of May, as the pound rallied on the news of the election. In contrast the FTSE 250 index climbed to new heights. The S&P 500 index had a rough ride over the month of April, however it managed to finish the month higher than where it started it. Despite all the news flow the Vix index closed the month lower than where it started. Earnings reports have dominated the month and with just over half the S&P 500 companies having reported, year on year earnings growth is currently running at 12.5%, this would make it the strongest season since 2011, according to Factset.
The recent pick up in UK inflation has appeared to dent consumer sentiment and retail sales, and this fact seems to have fed its way into the latest estimate for economic growth for the UK economy. The UK economy, according to Friday’s release from the Office of National Statistics, for the first quarter of 2017 was just 0.3%, this contrasts with 0.7% for the final quarter of 2016. Consumption was also considered the reason why US GDP likewise came in below expectations.
The first week of every month sees the release of the past months Purchasing Managers surveys. These are considered the best lead indicator for the outlook for economic growth. On Sunday, the NBS Manufacturing PMI reading for the Chinese economy came in at 51.2, below expectations of 51.6. It May be a holiday on Monday in the UK, however it is not in the US where market analysts will be digesting a raft of economic data, including those PMI readings.
On Wednesday, the Federal Reserve meet to announce their latest interest rate decision, currently expectations are that there will be no change at Wednesday’s meeting, and that June is month for the next rise. There is no press conference planned post the announcement, however the accompanying statement will be read with great interest.
On Thursday, the Bank of England announces their latest interest rate decision. Likewise, no change in rates is expected. What will be interesting to see is if the number of votes in favour of a rise alters from the previous month.