A mixed week for equity markets, the S&P 500 dipped a little to leave it virtually unchanged for the year and almost exactly where it was three months ago. Markets in Europe have had a slightly better week but again remain close to where they started the year. The euro lost ground against the US dollar, partly on concerns that there may be some contagion from the new Italian euro sceptic coalition and partly as the dollar remains strong against its basket of other countries. The pound continues to lose ground against the dollar post the weak GDP data, however, it did make modest gains against the euro. Yields on 10-year US treasuries remains just above 3%, however, the yield on the two year remains closer to 2.5%, resulting in a slight steepening of the yield curve.
As we have said before it still would appear that the bricks remain in the wall of worry. Italy, China trade talks and North Korea, being the largest. Another might become the level of debt in the world post the financial crisis. Barron’s article reports that the Bank of International Settlements released figures that total non-financial public and private debt is now higher than it was as a pct of global GDP in 2007. Encouragingly the underlying economic picture remains robust, US retail sales data this week reported that spending picked up despite the rising oil price. Barron’s consolidation of weekly sentiment measures suggests equity optimism remains well below it was earlier this year. Equity funds did see modest inflows in the past week according to Lipper. A continuing rising dollar could add another brick as the fresh concern will reappear for those countries whose debt is mainly denominated in US dollars. We sit in the camp of sceptics regarding Bitcoin, however, some analysts like to look to its move as an indicator of risk appetite. The Bitcoin has given back some of the recent gains in the past week.
Looking to the week ahead, US economic data points will be the composite flash PMI for May, along with new home sales. Later in the weekly jobless claims and durable orders will be scrutinised. As for Europe, Wednesday sees quite a data dump. For the UK economy, we get a raft of inflation statistics. In mainland Europe we also get a series of flash PMI data, expectations are for the reading to remain comfortably above 50. On Thursday we get German GDP final for the first quarter.