Weekly Market Update

30/04/2018

The 10-year Treasury yield breached the 3 per cent mark for the first time since 2014, last week, rattling investors. Whilst this level has psychological significance to market participants in terms of the broader economy and wider financial market landscape, it does not represent a meaningful tightening of financial conditions.

US economic growth slowed to an annualised rate of 2.3 per cent in the first quarter of 2018. The figure was better than the 2 per cent economists had predicted, but still down from the rate of 2.9 per cent seen in the fourth quarter of 2017. Cautious consumer spending, which makes up more than two-thirds of US economic activity, grew at its weakest pace in nearly five years, and was blamed for the slowdown.

Global growth indicators have lost some of their sparkle in recent weeks, and US surveys have pointed to some anxiety among executives over the risk of a Donald Trump-led trade war. However, economists stressed that the US GDP numbers have yet to reflect the full impact of the $1.5tn tax-cutting package pushed through Congress by the Republicans last year, nor increases in public spending caps subsequently agreed in Congress.

US wages grew at the quickest pace since before the recovery started, adding to evidence that steady economic growth and falling unemployment are finally lifting incomes and potentially inflation. Official figures showed a 2.9 per cent growth in private sector wages and salaries in the first three months of the year compared with the same period a year earlier. The stage appears set the next interest rate hike in June.

In contrast to strong US data, UK GDP slipped to 0.1 per cent in the first quarter of 2018, down from 0.4 per cent in the fourth quarter of last year and the slowest level since the final three months of 2012. UK consumer confidence remains a drag while Brexit continues to overshadow any positives.

At the European central bank meeting policymakers struck a dovish tone. The bank did not adjust interest rates but kept its promise to buy bonds under its quantitative easing programme until the end of September and keep interest rates at their current record lows well past the end of their asset purchases. The Bank of Japan also kept rates on hold but ditched its timeframe it had set for hitting their inflation target.

Technology stocks delivered strong numbers last week with net income from Facebook rising by more than 60 per cent while earnings came in 25 per cent higher than expected. Google-owner Alphabet reported an 84 per cent increase in first-quarter profits, beating analysts’ expectations, while Amazon profits came in at $9.4bn compared with a consensus estimate of $6.56bn.

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