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.

The Conference Board US consumer confidence data for March has shown a useful uplift during March to 52.5 from 46.4. The turn in the employment cycle is clearly helping to improve sentiment. The other marginally positive news today was that the S&P Case-Shiller House Price Index showed a seasonally adjusted gain of 0.4% in January. Not that significant in the grand scheme given the sorry state of the US housing market. However it does at least provide evidence of some stability.

The final estimate for Q4 UK GDP has been further revised up to 0.4% from 0.3% whilst the year on year growth rate was revised to -3.1% from -3.3%. The peak to trough decline in GDP remains unrevised with a -6.2% drop from Q1 2008 TO Q3 2009. This makes the 0.4% Q4 gain look relatively insignificant when comparing it to the over fall in GDP. It will be several years before the UK gets back to where it stood in Q1 2008.

At the time of writing the FTSE100 is off by 30 points and having struggled to make headway during the last couple of sessions a degree of consolidation is inevitable. We find it hard at present to see what catalyst will push the market much higher in the short term. Most of the major sectors look to be trading around fair value.

This week is all about the Non Farm Payrolls in the US with the first big positive reading expected since mid 2007. The consensus is expecting a gain in employment of 200,000 during March (due for publication on Friday) which should bring the unemployment rate down a little from the previous level of 9.7%. Also on the employment front the ADP employment report for private payrolls during March will be published on Wednesday. The consensus is looking for a more modest gain of around 40,000. The government will be recruiting people in large numbers for the decennial census count which will be one major reason for a big difference in the trend with the Non Farm Payroll data.


On Tuesday in the US we get the Conference Board Consumer Confidence data for March which is expected to show an improvement to 50 from the previous level of 46. Most consumer confidence data took a modest hit in Jan/Feb partially due to the bad weather and ongoing poor jobs outlook. On Wednesday in the US data for February factory orders will be published with the consensus expecting an improvement over the month of 0.4% after a January gain of 1.7%. The weekly initial jobless claims published last week provided further evidence of an improving jobs situation in the US with claims falling to 442,000 and another decline in this number is expected this week when the data is published on Thursday. The other major US data scheduled is on Thursday with the Institute for Supply Management Manufacturing data for March. There is a clear revival in the US manufacturing sector with the last number for February at 56.5 and the consensus is expecting a degree of consolidation with a move back to around 56.0.

Elsewhere we have had industrial and consumer confidence data for Europe today which was broadly in line with expectations. Tomorrow in the UK the final estimate for Q4 GDP data will be published. The last estimate was 0.3% and the incumbent government will be hoping for no downward revisions.

On Wednesday German unemployment data for March will be published and we will also get the European CPI figure for March. On Thursday we see the publication of the Purchasing Managers Index for March covering Europe, UK and Germany plus German retail sales for February.

In the absence of any bad news the market has continued to make strong progress. In the UK retail sales data for February has surprised on the upside with a 2% gain during February although the January data was revised down to -3%. Given the heavy January decline the February data should not be considered the start of consumer resurgence and instead was a month of catch up.


The US weekly initial jobless claims were a little better than expected with claims at 442,000 compared to expectations of 450,000. Whilst not a massive improvement it does continue to suggest that the nonfarm payrolls may well post a small positive number next month.

Tomorrow in the US look out for the University of Michigan consumer sentiment data for March. The consensus is looking for a modest improvement on the previous level of 72.5. We also get the final estimate for Q4 2009 GDP which is expected to give the same reading as before at 5.9%.

Not surprisingly the budget today has provided no surprises especially as most of it was leaked last night. There is certainly nothing that is going to influence the market this afternoon. In the US the Durable goods order for February was a little less than expected at 0.5% compared to expectations of around 1.0%. This data is notoriously volatile and subject to what are sometimes big revisions. The January data was revised from +2.6% to +3.9%. Sales of new homes in the USA fell 2.2% to an annualised rate of 308,000 compared to expectations of 315,000. The bad weather undoubtedly had an impact but at the same time the jobs outlook is clearly impacting on activity in the housing market.


The Euro Zone PMI estimate for March showed that manufacturing and the service sector is continuing to rebound. The manufacturing index hit a 39 month high of 56.3 compared to the previous level of 54.2 in March. Anything above 50 indicates expansion. Whilst the services index rose to a 28 month high of 53.7 compared to the previous level of 51.8.

Sainsbury’s delivered its Q4 trading statement today. It was a little ahead of expectations with like for like sales growth excluding fuel up 1.7%. This was a big fall compared to the previous quarter but not unexpected given recent industry data. Overall there is little in the way of a catalyst to push the Sainsbury's share price higher but we also view the downside as limited given the asset backing, yield and background takeover talk that never quite goes away.

The UK CPI for February has fallen a little further than expected to 3.0% in February from the 3.5% registered in January. There does not appear to have been any delayed impact from the January VAT increase and if anything retailers appear to have absorbed some of the increase rather than pass it on. With so much spare capacity in the economy any inflationary pressures are going to be very limited and we can expect the CPI to drift lower over the coming months. From the perspective of monetary policy it does seem highly likely that rates will remain on hold for most if not all of 2010.


You have to go back to June 2008 to find the FTSE100 at levels it currently stands at. It is very difficult to assess if it has the legs to make much more progress and with a general election now only weeks away the uncertainty over the outcome is likely to hold the market back. Furthermore once a new government is formed attention is going to start focusing on spending cuts and increased taxation which is not going to help UK plc. Further gains may be made over the next few weeks but a period of range bound trading seems the best outcome and if anything a pull-back seems more likely.

A quiet day on the economic front and markets started the day heavily in negative territory although they seem to be clawing back a lot of the lost ground at the time of writing.


This week we get February CPI data for the UK with the core rate expected to remain around the 3% level still considerably above the Bank of England's target rate of 2%. Expectations are for the rate to come back below 2% over the coming months and we are unlikely to see any movement in the base rate for some time to come. The CBI has painted a downbeat picture for the UK today with growth of only 1.0% With this level of growth it is hard to see any change in the base rate until 2011.

Also on Tuesday we get US existing home sales for February which is not expected to show much change from the previous reported figure of 5m units on an annualised basis.

The main US economic news of the week will be the Durable Goods orders for February with expectations of a 1.0% gain after the 2.6% gain during January although excluding transportation the January figure declined by 1.0%. Also on Wednesday in the US we get new home sales for February which are expected to show an annualised sale rate of 315,000 compared to the previous level of 309,000. Concerns that the housing market in the US is starting to reverse once again could prove to be well founded if the housing data this week disappoints.

In Europe on Wednesday the Purchasing Managers Index for services and manufacturing will be published for March. The UK Budget on Wednesday will be very much in focus.

Thursday brings UK February retail sales and in the US Fed Chairman Ben Bernanke’s will be giving a testimony before the house Financial Services Committee hearing on "Unwinding Emergency Federal Reserve Liquidity Programs and Implications for Economic Recovery." His comments may well impact on the market during Thursday afternoon.

On Friday we get the final estimate for Q4 US GDP which is not expected to change from the previous reported level of 5.9%. The University of Michigan Non Farm Payroll data is due to be published on Friday for March with an improvement to 73.0 from 72.5 expected.

Today we have day traded Reed Elsevier with a typical swing trade. The shares were showing good relative strength first thing until the market sold off heavily providing a good opportunity to buy ahead of the afternoon rally which we thought there was a good possibility of. We will continue to monitor the shares and look to trade them again if the opportunity arises.

The CPI inflation data for February helped to allay any fears of resurgence in inflation at least in the short term with no change month on month during February whilst the year on year rate fell from 2.7% to 2.2%. The initial weekly jobless claims in the US were broadly in line with expectations with a fall of 5,000 to 457,000 compared to last week.


In the UK, the government's finances received a shot of relatively good news with the PSNBR for February coming in lower than expectations at £12.4bn whilst the disastrous January figure was revised from £4.3bn to just £43m (January is typically the strongest month of the year and normally generates a healthy surplus). Total borrowing for the year lies at £132bn which is double the amount of last year. The UK's deficit remains very significant and no matter what government is formed in May they will have to make significant cuts. Nevertheless this is unlikely to stop the current Chancellor from using today's news to offer some election boosting incentives in his forthcoming budget.

We have today closed out our long position in GlaxoSmithkline taken earlier this week.

The Fed continued with the same language last night with rates set to remain ‘exceptionally low’ for an ‘extended period’. The tone of the statement was a little more upbeat with comments that ‘economic activity has continued to strengthen’ and that ‘the labour market stabilising’. There was also mention of the fact that bank lending is continuing to contract although business spending on equipment and software is showing good signs of recovery. The debate over when the first rate hike will come continues to rage amongst the investing community but what is clear is that any move in stance is a long way off and it is not impossible that rates will remain where they are for all of 2010 and possibly even 2011.


The Fed mentioned yesterday that with a significant amount of resource slack there is little in the way of inflationary pressures in the system and this was confirmed yet again today with a 0.6% decline in producer prices during February, primarily due to lower fuel costs.

In the UK unemployment over the last 3 months has again fallen with a drop of 33,000 in the number out of work over the last 3 months which was the fastest decline in unemployment since 1997.

The minutes from the latest Bank of England interest rate meeting were published today with as expected a unanimous vote in favour of keeping rates at 0.5%. The Committee stated that inflation is expected to remain above target for several months to come (the January CPI was 3.5%). With the weakening pound there was some concern however that further inflationary pressure may enter the system.

Economic data is light on the ground today with housing starts for February due in the US this afternoon. Expectations are for a dip to around 560,000 units on an annualised basis from the January level of 590,000 units. We also have the US FOMC meeting today and investors will be looking at the detail in the accompanying statement. In Europe CPI data and the German ZEW Economic Sentiment index will be the main talking points.


The market is struggling to make much progress above the 5,600 level and it is difficult to see what the catalyst will be to take it much higher. A period of consolidation and range bound trading seems a more likely outcome in the short term.

AstraZeneca is holding an investor’s day today where there will be much focus on the growth opportunities in the emerging markets. This may well provide a boost to the pharmaceutical sector during today's trading.

This week inflation will be dominating the headlines with the Eurozone CPI data for February due tomorrow along with CPI for Italy and France. Overall in Europe prices are expected to have risen during February although the year on year rate is likely to remain under 1%. The US CPI for February is due to be announced on Thursday with prices expected to be unchanged month on month. The German ZEW economic sentiment index for March will also be published tomorrow and this is expected to show a modest improvement on the previous report of 45.1.


In the US we have had the Empire State Manufacturing index for March today which basically gives a snap shot of manufacturing activity in New York State. Expectations were around the 22.0 level and the actual result was 22.86 which suggest that the bounce in the manufacturing sector has continued. We have also had Industrial Production data today for February which grew by 0.1% against expectations of no change. Overall there has been nothing in the data today to upset the market. The FOMC are meeting tomorrow and as always all eyes will be on the accompanying statement and reiteration of recent statements that the funds rate will ‘remain low for an extended period’.

In the UK on Wednesday look out for the publication of the minutes from the latest Bank of England MPC meeting. Quantitative Easing remains on hold but a weak recovery may yet prompt the Bank of England to turn on the taps yet again.