Overview of the week commencing 1 May
Graham Cross, CEO
Last week brought news of slow growth in the opening quarter of the year over in the US. Slower growth is likely down to temporary factors, including our old friend ‘residual seasonality’. Conversely, slower growth in the UK is likely less to be temporary.
Meanwhile German business confidence remains high, with the ifo index rising to 112.9 in April from 112.4 in March. German business leaders reported further improvements in ‘current conditions’. That is particularly true of respondents in the wholesale and construction industries (manufacturers reported a slightly less upbeat assessment following strong improvements in March). Meanwhile ‘business expectations’ are less lively. Managers in all three industry sectors are signalling a little less enthusiasm about the potential for sustained improvements in the next six months or so.
We see some headwinds for the German economy. Around 20%of German trade is destined for the US and UK and who knows what the Trump trade agenda is, and how Brexit will pan out. Then there’s a general election in September. Added to that is a likely slowdown in consumption spending as inflation heads higher. Having said that, the German economy is growing strongly. Less strongly than last year, but strongly nonetheless.
In the US, year on year growth stands at 1.9 percent. Compare an annualized growth rate in the region of 0.7 percent during the first quarter of 2017 with a rate of 2.1 percent in the last quarter of 2016. On the face of it, that represents a sharp deceleration. But it is becoming something of a routine for Q1 growth to zig and for Q2 growth to zag. It’s a (mostly) statistical phenomenon dubbed ‘residual seasonality’ that the boffins at the Bureau for Economic Analysis have been grappling with since it first became apparent in 2013.
So, assuming we do see growth rebound in Q2 – and we see no reason currently to suggest it will not – the US economy is still growing at something like 2.0 percent each year.
Our thinking is that the Federal Reserve will hold rates where they are, so the main features for next week’s report will come in the form of the Chinese manufacturing purchasing managers’ survey and the US Non Farm Payroll report.
So, it looks like Marine Le Pen will not be the next President of the French Republic. Prices in the betting market suggest an 88 percent probability that Emmanuel Macron will win the run off. The first round results were very closely correlated with polling estimates.
Meanwhile the first estimate for GDP growth in the UK during the first three months of the year came in at 0.3 percent. That compares with consensus expectations for around 0.4 percent and growth of 0.7 percent in Q4 last year. Consumers consumed even less than the less that was expected.
Elsewhere, the Bank of Japan and the European Central Bank opted for no change in monetary conditions following the rate-setting committee meetings.