The U.S. – In April, it was the old “bad news is good news” refrain as market participants reacted to the initial reading of U.S. gross domestic product (GDP). The 1st quarter initial GDP reading came in at .2%, which was well below the 4th quarter’s 2.2% rate. According to the Bureau of Economic Analysis – National Income and Product Accounts report, much of the sluggishness was attributable to a decrease in prices paid for products, a tepid increase in personal consumption and the strong dollar’s impact on exports. Inventories also grew in the first quarter and, without this increase in inventory levels, GDP may have turned in a decline instead of the weak advance. While this slack increase in GDP was bad news for the economy, market participants, who believe that this dismal performance would likely forestall Fed action on interest rate increases until later in the year, saw the glass as half full.
The U.S. Federal Open Market Committee made no changes at a late April meeting, acknowledging recent slow economic growth but removing language expressing a rate hike was unlikely following its next meeting.The preliminary GDP estimate will be revised with a second estimate on May 29th, but it seems for now, few believe (as evidenced by a continuing climb in stock market valuations) that the numbers will improve enough to inspire immediate Fed action when they meet in June.
While the 1st quarter on the whole was sluggish at best, bright spots did begin to emerge in March and continued on into April. Retail sales rebounded in March amid rising prices at the consumer and producer levels. Jobless claims—both initial and continuing, weekly and four-week average—fell to 15-year lows during April. Consumer sentiment advanced in late April, with readings for both current economic conditions and future expectations surpassing March’s readings.
The U.K.- The European Central Bank held benchmark interest rates steady and reaffirmed their intent to continue monthly asset purchases of €60 billion through September 2016. Labor market improvements failed to meet expectations in March, as a drop in unemployment was met with continued stagnation in average weekly earnings. Overall, the economy grew 0.3% during the first quarter, half the fourth quarter’s pace, and the slowest since 2013.
Home prices in the U.K. continued to increase in April, which maintained the nearly uninterrupted increase in housing prices since the Fall of 2014. Housing-driven progress also underscored a nine-year peak in construction-sector confidence as measured during March.
The Eurozone- As expected, the weak Euro contributed significantly to the expansion of the Eurozone’s international trade surplus. Consumer prices were flat year-over-year in April, which marked a trend change from deteriorating consumer prices that had plagued Europe since November; in fact, core prices (which exclude food, alcohol, tobacco and energy) actually rose. Economic sentiment remained positive, but showed a slightly weakening confidence as the outlook for price increases improved. Eurozone manufacturing and services sector growth slowed in April from the prior month’s 11-month peak and employment remained steady at an 11.3% unemployment rate.
U.S. Treasuries and U.S. investment-grade corporate bonds were negative for the month of April but emerging-market debt, U.S. high-yield bonds, global sovereign debt, global investment-grade bonds and U.S. Treasury Inflation- Protected Securities all turned in positive returns, as did U.S. asset- and mortgage-backed securities, although their returns were only marginally positive.
Global equity markets, as reflected by the MSCI AC World Index, advanced in April. Europe remained well-represented among top performers, claiming half of the 20 best country-level returns. The U.K. delivered a very strong performance, Japan was notably positive, and the U.S. also gained, though not by much.
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