Weekly Market Update

06/05/2019

Markets struggled for momentum last week as US equities retreated from fresh record highs amid concerns over global growth and a failure of the Federal Reserve to meet market expectations for yet more dovish talk on the outlook for monetary policy. The news agenda was dominated by corporate earnings, whilst local elections in the UK saw heavy losses for the traditional Labour and Conservative Parties as voters used the opportunity to express anger at the current Brexit impasse.

The Bank of England upped its UK growth forecast for this year, which now sees GDP growth of 1.5 per cent in 2019, up from February’s forecast of 1.2 per cent. As expected, the Bank kept interest rates on hold while Governor Mark Carney hinted that an interest rise was likely sooner than many observers think possible. However, the absence of any discussion of higher rates in the MPC minutes suggests little desire on the committee to consider an interest rate rise in the meetings to come in June or August. The committee judged that Brexit uncertainties still had the potential to hit business investment even harder and it thought that recent rises in sterling would keep import prices under control.

The US Federal Reserve kept interest rates on hold despite pressure from President Donald Trump to announce a cut. A rate cut seems unlikely given the recently strong US jobs report which highlighted that unemployment rate fell to 3.6 per cent, the lowest rate since December 1969. The Fed did observe that household spending and business investment decelerated in the first quarter, while inflation was running below its 2 per cent target.

Inflation in the eurozone picked up in April, with consumer prices rising 1.7 per cent in April, the highest since October, from 1.4 per cent the previous month. This substantiates recent data which showed the eurozone’s economy picking up at the start of the year, reversing the sharp slowdown of the second half of 2018 and raising economists’ hopes that the worst may be over.

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