Reporting on the ebbs and flows of capital markets, on some days one could fill pages, on others, it feels there is little to report. At this moment in time, there seems to be a pause as investors in all asset classes take stock. The data from the US continues to give something for the bulls and the bears. The jobs report overall shows a healthy jobs market, whilst some of the macro data has been weaker than anticipated. The Citi economic surprise index continues to drift lower. There does appear to be some correlation historically between the first quarter and weak economic data. Equity investors and bond investors currently appear to be taking opposite sides for a potential recovery in the second quarter.
Optimism on trade talks also seems to keep equity markets buoyed as the financial press, for example, the Wall Street Journal, start to use the Goldilocks phrase once again when describing the US economy. The main question is what is going to happen to inflation in the coming months. According to the Bureau for National Statistics, the US economic expansion remains above its potential, which could trigger higher inflation. Other data suggest wage inflation could rise further. The oil price continues to rise - again possibly raising inflation rates. Signs that inflation is picking up will put the Federal Reserve (Fed) in a difficult position.
The data from Europe does at least seem to be improving, if only modestly. German manufacturing orders remain weak, however, there has been something of a recent bounce in German industrial production. The eurozone services Purchasing Managers' Index (PMI) has been rising in the past couple of months. The Services PMI is a reflection on employment, there can be a lag between services and manufacturing, so it is possible that manufacturing PMI data improves in the coming months. Recent retail sales data beat expectations as did the latest economic sentiment indicator. Mr Draghi may be able to point to some green shoots of a stabilisation of the euro area economy at the monthly meeting.
Equity markets have once again paused for breath ahead of the European Central Bank meeting and the release of the minutes from the last Fed meeting. The start of earnings season may be the catalyst for the next directional move.