All eyes today were on the first estimate for Q1 GDP. The data for Q4 showed growth at an annualised rate of 5.6%, and the consensus was expecting a slow down for Q1 to 3.4 with the actual number coming in at 3.2%. This was not far off expectations and is unlikely to unsettle the US market this afternoon. The breakdown of the data did show that US consumer spending contributed 2.5% of the 3.2% last quarter which is the largest contribution since the fourth quarter of 2006 and certainly provides some grounds for encouragement given that the inventory replacement part of the cycle is now coming to an end.

Also today in the US we see the publication of the University of Michigan Consumer sentiment numbers for April with an improvement to 71.5 from the March level of 69.5 expected according to the consensus.

In Europe today we have seen the publication of the CPI for April which was bang in line with consensus expectations at an annualised rate of 1.5% whilst the Euro Zone unemployment rate remained static at 10%.

With the final election debate now over the UK election end is now in sight. The prospect of a hung parliament looks ever more likely and to what extent this will impact on the UK market is difficult to ascertain. A repeat of 1974 when a hung parliament caused the FTSE All Share to decline by 21% during the following month is highly unlikely. The truth of the matter is that no matter who wins power the path of the UK economy is unlikely to change much with deficit reduction likely to hinder any attempt at getting growth back towards trend. That is not to say there will not be some form of immediate market reaction but in the very short term at least a correction seems unlikely. Once there is clarity on exactly what the new government’s plans are for deficit reduction and how the rating agencies respond to that might well dictate how the UK market moves over the coming months. A rating downgrade for the UK would be very damaging and this would almost certainly impact on equity valuations especially if gilt yields start to rise.

The market has rallied today in the absence of any further debt downgrades with Ireland now likely to be the next contender for a possible downgrade. There has been some talk of the same happening to the UK but this seems unlikely in the short term. Whilst S&P have placed the UK on negative a negative outlook with reference to the UK’s AAA rating, any change will almost certainly be delayed until after the election and they have seen what measures are going to be put in place to attack the deficit.


A lot of the more defensive stocks are having a difficult time of it at present and most seem to have drifted some distance from their recent highs. Both tobacco stocks are a good example, Imperial and British American Tobacco have reported this week and neither has really disappointed the market but longer term concerns over volumes seem to be dominating investors thinking. Both stocks have sold off and are now underperforming the overall market and there is a similar story with the pharmaceutical stocks. At some stage we would expect these areas to again come back into favour, probably as investors start to move away from the more cyclical areas of the market as valuations start to look full. In the meantime the more defensive areas of the market are likely to find it hard going.

Market volatility is back and the last two trading days has been dominated by fears over sovereign debt risk in the Euro Zone. The downgrade by S7P of Greek debt to junk status BB+ and the downgrade to Portugal's debt by two notches to A- from A+ has increased the fear considerably. The Greek situation is not really new news and the reality is that the Portugal downgrade is the major factor behind the market falls yesterday and today. The question of whether we are facing multiple IMF bail outs is a reality and whilst Greece is the only major contender for this at present other Euro Zone countries cannot be ruled out with Spain and Portugal facing large fiscal deficits. The long term rating for Spain has been cut today by S&P to AA with a negative outlook. As to why they have chosen today to announce this news rather than do so yesterday with Greece and Portugal is a mystery.


What this all means for equity valuations is very difficult to say. Valuations particularly in the US have been looking stretched for some time and this news combined with uncertainty over financial reform in the US has provided the conditions for a sell-off in world markets and ongoing concerns over fiscal deficits worldwide may well dampen enthusiasm for equities during the summer months. However at present we are only dealing with Greece and their economy is relatively small and consequently any impact on world growth will be negligible. The next major news will undoubtedly be the agreement of IMF bail out conditions for Greece which may well improve sentiment in the very short term.

The US consumer confidence report by the Conference Board announced yesterday for April rose to 57.9 from 52.5. Whilst encouraging this index is some way off the more normalised levels of around 100 during periods of sustained economic growth.

All eyes this evening on the statement accompanying the FOMC meeting announcement on the US interest rate. Given how fragile markets have become during the last 24 hours any change in the language of rates remaining low for an extended period could create a further sell off although it does seem unlikely that we will see any change in policy at this stage.

An interesting point that one US market commentator made today is that the gap between recessions is shortening, the US had 10 years between 1990 and 2000, 5 years between 2002 and 2007 and he has predicted that the next one is likely to occur within the next 2-3 years. The point he makes is that when the downturn does come and with rates likely to still be at near historic lows and the availability of any fiscal stimulus short on the ground given the Fed’s $1.4 trillion fiscal deficit. The risk that there is no firepower available to ease the pain next time around is very much real. Added to that with unemployment unlikely to have recovered to more normalised levels the US economy is likely to head into its next recession poorly equipped to ensure a speedy recovery. At the moment this is the last thing the market is going to worry about but eventually the next recession will happen and the state of the Federal Reserve balance sheet may well be a major problem next time round.


World markets have sold off today with the threat of Portugal turning into another Greek situation. We have just heard that S&P have downgraded Greece below investment grade and Portugal by two notches. Sovereign debt risk is here to stay and these headlines are going to keep coming back for some time to come. This in itself may put a cap on the market in the very short term or at least until the market considers the threat from it to have abated. The spread between Portuguese and German bonds widened to 227 basis points today, the largest spread since 1997.

The major focus of investors’ attention over the coming week is likely to be the FOMC interest rate meeting decision on Wednesday and the first estimate for US Q1 GDP due out on Friday. The former is unlikely to result in any change in current policy or the interest rate but as always the accompanying statement is what will receive all of the attention. It does seem unlikely that there will be any change in the language of keeping rates low for an extended period but at some point it will change and inevitably there will be a market reaction to it. For the time being it is safe to assume no change on all fronts. The first estimate for Q1 GDP will make for interesting reading. The final estimate for Q4 2009 was 5.6% and the consensus is looking for a number around the 3.4% mark.


Also in the US this week we have two consumer confidence readings, tomorrow the Conference Board announces its first estimate for April and after the final reading of 52.5 for March the consensus is looking for 53.5. On Friday the University of Michigan announces its second sentiment estimate for April, the first showed an unexpected decline to 69.5(its lowest level in 6 months) from 73.6 but the consensus is expecting a reversal back up to around 71.0. It is interesting to note that under more normalised economic conditions with steady growth this index fluctuates around the 100 level.

In Europe the main event will be the publication of inflation data on Friday for April and the unemployment rate for March. For the former the consensus is expecting no change from the annualised figure of 1.45 reported for March. The unemployment rate is expected to remain at 10%.

In the UK the election rolls on towards what looks like a hung parliament whilst the only economic news worthy of mention that is due for publication this week is the CBI Distributive Trades Survey (an indicator of short-term trends in the UK retail and wholesale distribution sector) for April which is expected to show an improvement to around 16 from the previous level of 13 reported in March.

We have several companies on our monitored list reporting this week and we start off tomorrow with Imperial Tobacco.

The first estimate for Q1 UK GDP has been disappointing with a reading of just 0.2% and this compared to consensus expectations of a figure around the 0.4% mark. This miss has been partially blamed on the bad weather earlier in the year which hampered economic activity but whichever way you argue it is difficult to escape the fact that the UK continues to bump along the bottom and growth for the full year looks on course to be around the 1.0% to 1.5% mark.


Yesterday the downgrade of Greek debt by Moody’s following the publication of a higher than expected budget deficit for 2009 did not help the market whilst in the UK the PSNBR was slightly less than forecast for March bringing the overall total borrowing for the year to £152.8bn compared to the budget estimate of £166.5bn.

In the US today we have had durable goods orders for March which excluding transportation were up 2.8% over the month following a revised 1.7% gain in February. The headline index including transportation fell 1.3% whilst the consensus was expecting a 0.4% gain. Overall the ex transportation figure is the one to focus on and this will be viewed positively by the market especially following the upward revision to the February data. New home sales in the US during March were strong with the rate of 411,000 on an annualised basis compared to expectations of a rise of 330,000. Not too much can be read into this number given that a lot of this increased activity is due to buyers completing before the expiry of the home buyer tax credit.

The market at the time of writing has recovered all of the losses made yesterday. This week we day traded Tesco following their results with a small net gain on the day. Next week we will be focusing on the results of GlaxoSmithKline and the tobacco stocks, Imperial Tobacco and British American Tobacco.

The market has sold off today with bad unemployment data not helping with sentiment. Unemployment has risen to a 15 year high and in the three months to February a further 90,000 people lost their jobs bringing the total number of people unemployed to 2.5m. The claimant count actually fell by 32900 but that was primarily due to training schemes taking people off the dole.


The minutes of the latest MPC meeting were published today and there was no indication of any likely change in policy for the foreseeable future. There were some comments to suggest a degree of unease over the future path of UK inflation and that was before the CPI data yesterday which was considerably worse than expectations. Overall though with so much excess capacity in the economy there is still unlikely to be much in the way of medium term inflationary pressure and rates are likely to remain on hold for most if not all of 2010.

The Greek debt situation keeps coming back to haunt the market with growing concerns over next month and the fact that the Greek government needs to raise €10bn next month. The FTSE100 fell back by 60 points today and seems to now be struggling to make headway above 5800.

UK inflation is the main headline of the day with the annualised CPI moving up to 3.4% against expectations of 3.1%. The increase was primarily due to increased petrol prices. The news today has provided sterling with a boost against the pound and the dollar. However, it is still difficult to see inflation expectations moving much higher from these levels and whilst it is not inconceivable that the MPC will increase the interest rate before the year end, the level of slack in the economy will continue to place a heavy downward pressure in the medium term and the recent short term factors such as petrol and the vat hike will fade away. There is of course the real possibility that VAT will go up with a new government.


No major economic data has been scheduled in the US today and with little for the market to focus on the UK has recouped a lot of its losses from Friday and Monday.

The news on Friday afternoon that Goldman Sachs faces fraud charges brought the market back heavily during the last hour of trading in the UK and the market is again in negative territory with uncertainty over how long the disruption caused by the Icelandic volcanic eruption will last. Any economic impact is likely to be relatively small although the longer the disruption to air travel continues the more markets will worry. Any short term impact to economic activity is likely to be compensated for by increased activity once normality returns and the alternatives of sea and rail are likely to see greater activity which will compensate for at least some of the lost output resulting from the airways being closed. It will be interesting to see if the resulting increase in alternative transport costs will have any major impact on UK CPI.


Little in the way of economic data today. In the US the Leading Indicator index (A composite index of ten economic indicators that should lead overall economic activity) moved ahead by more than consensus expectations to 1.4 for March with the manufacturing sector playing a large part in boosting this index.

Most of our monitored companies are reporting next week making trades difficult to find at present. Reed Elsevier is due to report tomorrow and this may well provide a trading opportunity during the next few trading days.

Today in the US we have the housing starts data for March. The bad winter weather led to a drop in the February numbers but we should see an improvement in March with the consensus expecting a figure somewhere around the 600,000 mark on an annualised basis. We also get the University of Michigan Consumer sentiment data for April and the consensus is expecting this to show a modest improvement to around 75 from the previous reported level of 73.6 in March.


In Europe the CPI data for March was published this morning and this was broadly as expected with the month on month rate at 0.9% whilst the year on year rate moved up to 1.4%. Inflationary pressures in the main continue to remain subdued in Europe.

The Federal Reserve’s Beige Book, a collection of anecdotal reports on economic activity from the 12 regional Fed banks was published last night and the report stated that “overall economic activity increased somewhat" in 11 out of 12 districts with St Louis being the exception. This at least indicates that the scope of recovery is broadening but the pace remains relatively subdued. The manufacturing sector appears to be making the running at present with mixed reports from the service sector. With the broader economy operating well below capacity there was little in the way of signs of inflationary pressure. There was nothing within the report to suggest any change in Fed policy of keeping rates low 'for an extended period'.


The weekly jobs claims data in the US today was again a little disappointing with a rise to 484,000 from the previous level of 460,000 whilst expectations were for a figure of around 440,000. The rise has been blamed on administrative problems with staff catching up on processing orders due to the shortened Easter week.

We had further evidence today of improvement in the US manufacturing sector with the Empire State Manufacturing index surging to a strong 31.86 for April from the previous level of 22.86 whilst the consensus was expecting a more modest improvement to 25.0. This index basically gives a snap shot of manufacturing activity with the Ney York region.

No major news in Europe or the UK is scheduled for today. The FTSE100 is again in positive territory today showing a rise of 15 points at the time of writing. However, this is nearly all due to a strong performance from the financials whilst the broader market has actually sold off.

Ben Bernanke has made it clear today in his testimony to Congress that the US economic recovery will be moderate at best. Citing a weak employment outlook and low construction spending combined with the poor state in the finances of local and state governments as being the major headwinds to growth. The real issue is of course consumer demand and without consumer spending the recovery will falter. Again this is something that Bernanke highlighted concern over stating that final demand should be sufficient for a moderate recovery. However this fact remains very uncertain and unless the employment situation starts to show sustained signs of recovery the possibility of weaker than expected consumption growth remains very high.


An interesting fact from David Rosenberg, a well known economist in the US, that US corporate earnings were around 20% higher the last time the US indices were around current levels does demonstrate the real risk that markets are getting more and more over extended. Also bearing in mind that a lot of the government stimulus measures will be turned off over the coming months, there will be added pressure on the economic recovery, but whether markets are discounting this and the prospect of sub trend growth for some time to come is another question.

In the US today the main economic news is that core inflation remained unchanged during March and with food and fuel included the CPI only rose by 0.1%. With so much spare capacity in the US economy there remains little danger of inflationary pressures returning in the US. We have also had retail sales data for March which showed a 1.6% increase against expectations of an improvement of around 1.2%.

UK retail sales showed a useful bounce during March with like for like sales up by 4% although this was somewhat distorted by the inclusion of the Easter weekend when compared with the same period last year. If you strip out Easter like for like sales growth was still a reasonable 2%.


Further positive economic news in the UK came in the form of the UK trade deficit which was better than expected at- £2.1bn compared to expectations of around -£2.9bn. The January figure was -£3.9bn. With evidence of an improving trend in exports over January and February we should see modest growth during Q1 and possibly an improvement in the 0.4% in GDP growth achieved during Q4.

The Greek Treasury auction was very successful today with more than 7X demand for the Treasury Bills on offer. Clearly confidence has returned following the agreed bail out terms at the weekend.

World markets have sold off a little today following the Dow down after disappointment over Alcoa’s results and a small business confidence index that fell to an 8 month low.

Yesterday we day traded GlaxoSmithKline successfully and this is a stock that we will revisit again in the coming weeks.

A quiet day with little in the way of economic announcements to give the market direction. The main news was of course the agreed Greek bail out terms which seems to have calmed nerves and Greek bonds have started to rally as fears of a future default have started to subside. The euro has also strengthened today on the back of this news. Tomorrow will be interesting when Greece comes to the market to raise 1.2bn Euros in treasury bills.


Today marks the start of the US Q1 reporting season with Alcoa kicking off after the Dow closes. We can expect company results to move the market more so than the economic data now that the latter has already confirmed that a recovery is at least under way. The market will now be looking for evidence of this in company results and outlook statements as they come through.

The unexpectedly large decline during February in the amount of credit consumers are taking unsettled Wall Street last night. The decline of $11.5bn was the largest decline in 3 months and was against expectations of a fall of anything up to $9bn. On a positive note borrowing during January was revised upwards to +$10.6bn from +$5.6bn. Nevertheless a recovery can only be sustained by lending and with credit still tight and consumers reluctant to borrow because of the poor labour market this data does raise the question of just what level of GDP growth we will see over the coming months.


Federal Reserve Chairman Ben S. Bernanke, speaking in Dallas disappointed the market with no reference to keeping rates low for 'an extended period'. This is not really of any consequence given what was stated in the recent Fed minutes although world markets fixation with this statement is not going to help when the tone of the Fed's language does eventually start to turn. The real issue which Bernanke made reference to is the jobs market where there are still only tentative signs of job creation. Bearing in mind the 8.4 million jobs that have been lost during the recession it will take a sustained and significant improvement in the jobs market to bring the US economy anywhere near to the natural level of unemployment and in the meantime the uncertainty is going to keep consumers from spending and taking on the normal amounts of credit that the recovery will need. Keeping with the Fed, Tom Hoenig, Kansas City Federal Reserve Bank president stated that he felt interest rates should be raised which provided further pressure on the US market last night.

This morning sovereign debt concerns seem to be taking centre stage with fears over Greece and the possibility of a debt default. With the cost of Greek debt continuing to rise (10 year borrowing was over 7% during recent days) there is a real risk that they will not be able to refinance or indeed service future debt especially with around €20bn euros of debt due to be repaid within the next couple of months.

The minutes from the latest FOMC meeting provided little change to the outlook for rates remaining low for 'an extended period'. The Fed did lower their inflation expectations a little and overall they expect the recovery to continue albeit a modest one against the headwinds of the withdrawal of fiscal stimulus, tight credit and a weak labour market to name but a few.


Q4 GDP for Europe has been revised down from 0.1% to flat which was a little disappointing although more recent data does suggest that the Euro Zone has started to pick up momentum during Q1. The services Purchasing Managers Index for Europe was revised upwards to 54.1 for March which is the highest level since November 2007. The Organisation for Economic Cooperation and Development (OECD) forecast today that annualised, quarter-on-quarter euro zone growth would be 0.9 percent in the first three months of 2010.

Yesterday we closed our long position in Sainsbury for a modest profit although the shares have moved ahead today along with the whole sector. It is a stock that we will be looking to buy back into when the right opportunity arises.

A strong US Non Manufacturing ISM reading for March has provided the fuel for a further rally in the FTSE100 this morning. The new orders element of the index jumped to 62.3 whilst the business activity index rallied to 60.0, the strongest reading since 2006. With this number following on from a positive Non Farm Payroll report last Friday, the bulls do seem to be gaining the upper hand. A lot of attention is now focused on the 10 year treasury yield in the US. A move above 4.5% could well trigger an equity market correction which has been the case in the past. The yield is hovering around the 4% level at present, but if the economic data continues to strengthen this is likely to result in further downward pressure on treasuries and we may well see the yield moving closer to this threshold over the coming weeks. At some point we will start to see increased expectations of the first interest rate hike and when this happens it is inevitable that equity markets will enter a period of underperformance.


Later on today we will see the publication of the latest FOMC meeting minutes. On Wednesday, Federal Reserve Chairman Ben Bernanke speaks on economic challenges at present and the future which the market will no doubt focus on for any hints especially on future policy, Apart from that the rest of the week in the US is relatively quiet with the usual weekly jobless claim data due out on Thursday.

In the UK Gordon Brown will be kicking off the election by formally asking the Queen to dissolve Parliament. This will undoubtedly prove to be a volatile period for the equity market especially given the changes that will be made irrespective of who gains power in a few weeks time.

In Europe tomorrow we will see the publication of the final estimate for Q4 GDP. The last reading was a quarterly growth rate of 0.4%. Other European data due tomorrow includes the Purchasing Managers Index (Services) for March and the Producer Price Index for February.

In the UK on Thursday Industrial/Manufacturing Production data for February will be published and in Europe retail sales data for February will announced.

Both the European Central Bank and Monetary Policy Committee will be meeting to discuss interest rate policy. In both instances no change is expected with the European rate set to remain at 1.0% whilst the UK will stay at 0.5%.

Finally, on Friday look out for the Producer Price Index Input/output for March. This is always a good indicator of whether any real inflationary pressures are starting to build in the system.

The Non Farm Payroll data published on Friday in the US has probably done enough to keep markets happy that a recovery in the jobs market is underway. The 162,000 increase in the number employed was not quite at the consensus level of 200,000 but the detail within the figure does provide some comfort that private payrolls are starting to improve. The real risk was that the overall number was going to receive a big boost from government census hiring for the decennial count but in fact this number for March was up 48,000 leaving an improvement of 114,000 across other sectors. The private payroll element actually improved by 123,000 in March. Revisions were made to the overall Non Farm January and February data with the former showing a rise of 14,000 whilst the latter declined by 14,000. Overall nothing in these numbers to really upset the market and all eyes will now be on the Non Manufacturing ISM data for March with the consensus looking for a number around 54.0 compared to the February data of 53.0.

The US ISM Manufacturing index will set the tone for trading this afternoon. The index is expected to show a small fall back to around 56.3 for March from the February level of 56.5. The US weekly initial jobless claims have come in at 439,000 against the expected level of 440,000 which has provided some relief.

The Non Farm Payrolls will be published tomorrow and will set the tone for the market opening on Tuesday. Look out for a number close to +200,000, anything less than 100,000 is likely to result in a weak market opening on Tuesday. The ADP data yesterday could well point to a less than expected figure.

Disappointment over the ADP Private payroll number for March in the US brought the Dow back into negative territory although the UK managed a modest increase on the day with a late rally. The decline in private payrolls of 23,000 was against expectations of a modest improvement somewhere around 20,000 to 40,000. This raises the question of what the Non Farm Payroll figure will deliver on Friday given that expectations are for an improvement of 200,000. The real risk to the US economy now is a double dip in the housing market and a prolonged wait for any real improvement in the job market which will keep consumer sentiment at depressed levels and will undoubtedly hold back consumption growth. The US economy is far from being out of the woods yet.


Where the equity market goes from here is very difficult to tell. It is showing clear signs of having reached a top at least in the short term. With an election about to be announced in the UK and all of the uncertainty that will surround that it is difficult to envisage anything but a choppy market over the next few weeks.