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.

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.