Daily update
Daily update
- Bond and equity markets have weakened in Asian trading. There seems to be no single cause, rather a general sense of increasing risk. Economically, the drop in equities is not that significant—in theory, there might be negative wealth effects, but this is too small a move and most consumers have been relying on lowering savings rates, not equity liquidation to finance their consumption.
- Are markets reflecting changing expectations about the economic outlook? Up to a point. The US employment report was stronger than expected, albeit with some peculiarities in the detail. That at lease reduces investors’ sense of urgency about rate cuts. US President Trump was calling (again) for policy easing, which might further weaken Federal Reserve Chair Warsh’s reputation, reducing the chances of Warsh pushing their policy agenda.
- Missile exchanges between Iran and Israel have pushed oil prices somewhat higher. Investor skepticism about the “ceasefire”, and about the extent of US influence over events has limited the negative response. Investors are still focused on second-round inflation effects, which emphasizes the importance of US inflation data later this week.
- Japan’s first-quarter GDP growth was revised lower, but not as low as had been expected. Business spending was the main trigger of the revisions.