The last week of April was busy for global markets in the midst of earnings season, as investors digested two key central bank decisions alongside the last of major economic indicators for the first quarter of the year.
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US
US economic growth slowed to just 0.5% in the first quarter, its weakest pace in a year, held back by net exports and business investment, both externally-exposed segments of the economy.
Consumption also slowed, but is expected to rebound on strong real income gains and continued labor market progress. Still, the recent data may delay the next Fed hike until later this summer, but is unlikely to derail the Fed’s plans to continue normalising monetary policy this year.
Data on US consumer confidence and pending home sales point to continued modest improvement, while data on factory orders suggest that the drag from slower global growth and lower energy prices remains in place.
There have been some mixed signals about the direction of ISM manufacturing in April following the sharp rebound over the past couple of months. While the ISM order-inventory balance in March suggested an increase, Markit PMI has declined to the lowest level since 2009 in April. Regional indices have pointed in different directions but on average suggest an unchanged print.
The labour market is one of the bright spots in the US economy and, as long as employment continues to rise at a solid pace, it is reasonable to believe the Fed has its eyes on things other than employment growth.
The estimate for NFP (non farm payrolls) growth is around 210’000 in April, more or less in line with the recent trend, leaving the unemployment rate unchanged at 5.0% due to the increasing labour force.
UK
The preliminary estimate of GDP in Q1 increased by 0.4% compared to Q4 2015 and by 2.1% compared to Q1 2015. No expenditure components are released as part of this first preliminary estimate.
Data from the production side showed that services increased by 0.6%, contributing 0.5 points to Q1 GDP growth. This followed an increase of 0.8% in Q4 2015. Growth in business services and finance slowed from 0.7% growth in Q4 2015 to 0.3% in Q1 2016. This was the main reason behind the reduction in services growth between the two quarters. There was a downward contribution (0.05 points) from the production industries, as these industries fell by 0.4% in Q1 vs. Q4 2015. There was also a downward contribution (0.05 points) from construction; this industry fell by 0.9% in Q1 compared to Q4 2015.
The UK Consumer confidence fell in March to the lowest level in two years according to GfK. The index measures the general economic situation over the next 12 months (called the macro index) fell back to levels not seen since June 2013.
The Bank of England has said that uncertainty stemming from the June 23 EU vote may curb investment and spending and said this would be com-pounded if Britain opts to leave the union. Institutions ranging from the UK Treasury to the International Monetary Fund also warned that Brexit would damage the economy.
EU
April manufacturing PMI figures for Spain and Italy are due to be released on Monday. The expectation is for a moderate decline as indicated by the flash PMI data last week, where the euro area manufacturing PMI declined marginally, but the German manufacturing PMI improved pointing to a decrease in the remaining countries on aggregate.
The euro area retail sales data for March is also scheduled for release and, on the back of the mixed German and French figures released on Friday, a decline of 0.4% is expected. Note that despite having seen some weakness in the private consumption data over the past couple of months, the expectation is for an important driving force of the growth in the rest of 2016.
The European Commission posts regular updates on the advancement of the European Investment Plan, which was launched by Jean-Claude Juncker at the beginning of his mandate.
To date, the European Fund for Strategic Investments (EFSI) has already approved over EUR 10 billion in financing, and will contribute a total investment volume of EUR 76 billion according to the Commission. The success of the programme will depend on how well it juggles its size target against the imperative to concentrate on projects that cannot find alternative sources of financing.
China
The big jump in both manufacturing PMI indicators a month ago heralded the sub-sequent improvement in growth in industrial production and other activity indicators in March. That improvement, coupled with good news from the property market, damped fears of a hard landing in China and led to greater optimism in global financial markets.
The consensus estimate is for a slight increase of 0.1 points in both manufacturing PMIs in April. The expectation is for a somewhat bigger increase, especially in the PMI from Markit. Even though Markit’s PMI jumped the most in March, it is still lower than the official PMI. Increases in the two indices in April would confirm that economic growth has stabilised and is even accelerating somewhat.
Sources: Danske Bank, TD Economics, Handelsbanken, Wells Fargo, BNP Paribas.