The Week In Hindsight, 09 May 2014

US economic numbers continued to rebound this week as forward looking expectations for US Non manufacturing purchasing managers was revealed to have picked up ahead of expectations during April, while first time unemployment claims for the final week of the month came in lower than forecast.

Another highlight of the week for global equity investors was Janet Yellen’s testimony before the Joint Economic Committee in Washington. While drawing attention to a small number of risks and acknowledging that rates would continue to remain low for an extended period, Yellen indicated that the FOMC’s operation to wind down its asset purchase program will continue at the current pace. This is despite that voices of concern over Q1 growth continue to emerge from some segments of the policy maker universe.

Over on the other side of the pond UK manufacturing production numbers scored a hat trick on Friday. This was as output from the sector surpassed expectations for the third consecutive month, indicating that the elevated expectations of previous months have continued to feed through to actual production numbers.

Forward looking expectations for the UK services sector also appeared to have snapped a six month period of decline during the week when April’s PMI numbers showed a rise in the index from 57.9 up to 58.7.

In a further boost to sentiment toward the UK economy, a report issued by KPMG highlighted a decline in the availability of temporary staff to the lowest level since the onset of the financial crisis. This was while the NIESR GDP estimate for April also returned its highest figure since pre 2007/08, indicating that despite cooling forward expectations among the halls of big industries throughout Q1, the economy may have achieved a similarly rapid rate of growth. Official GDP figures (second estimate) are due for release later on the 22 May.

Next Tuesday, Wednesday and Thursday see US Retail Sales, PPI and CPI released while the UK unemployment rate and claims data are also due over the same period.

All in all, the performance of western indices has remained benign over the week despite the brightening economic outlook. The FTSE 100 closed fractionally lower on the week, while at the time of the London close the Dow Jones was also headed for a minor weekly loss.

Nevertheless, we continue to hold a favourable outlook for the UK and US economies over the months ahead. With the passing of winter weather in the US, and a gradual slowdown in economic barometers in the UK bringing some of the readings back toward normal levels more consistent with greater upside, both economies now have a clear path toward expansion up ahead. As a result, with all other aspects held constant, we expect momentum to begin building once again as we head toward the warmer summer months.

FTSE 100 and DOW JONES (Black)