Equity markets in the US did start the week in fine fettle, European equities followed suit, however, they have drifted once again into the month end. Boosted initially by the dovish stability report at the end of last week, Jay Powell’s testimony to congress and some mixed economic data has led to a pull back into the end of the month. US ten-year Treasury yields have retreated from the 3% level most commentators predict they will get to in the near future. Jay Powell’s first testimony as the new Chair of the Federal Reserve prepared statement reiterated the Federal Reserve’s plan to raise interest rates during the year, and markets remained convinced the next move to be in March. Jay Powell gave a fairly optimistic view of the economy and believes that in spite of the rate rises on balance monetary policy remains accommodative.
Durable goods orders fell further in January than had been anticipated. Further evidence that the US economic growth may have slowed in the first quarter. At this time equity markets have been spooked by rising interest rates, it could now be just as easily spooked if yields started to fall as this could be a sign concerns that the US economic growth was slipping. This is, however, an unlikely outcome as Purchasing Manager Surveys remain robust and business investment will continue during the year ahead.
Where Purchasing Manager surveys have disappointed is in China. February’s manufacturing PMI came in at 50.3, weaker than expected and close to the 50 mark that indicates the difference between expansion and contraction. This weaker than expected data out of China is likely to dampen equity sentiment into the month end.
February is historically known as a difficult month for equity markets and so this one has proved. There has been something of a recovery towards the end of the month. The S&P 500 will have lost circa 5% from its highs, the FTSE 100 a similar amount in the month of February. March is traditionally a better month for equity markets, one cannot rule out more volatility.