How Windy Is It . . . ? Tuesday, 3rd May 2016 – No.177
How windy was it last week?
Calmer than was expected, especially as we were dealing with a week dominated by central banks. The Federal Reserve led the way last week and was suitably cautious in its forecasts, maintaining the approach of a lower for longer environment for short-term interest rates. Expectations were indeed for maintaining the status quo, however the most important points were always going to be indications of whether June would be set for the next interest rate rise. As is typical with central bank rhetoric, the case for when the next interest rate is open for debate.
While the Fed broadly followed expectations, the Bank of Japan (BoJ) certainly did not. In summary, the BoJ told the markets ‘no change’ as they kept their policies on hold, despite the widespread expectations to increase their quantitative easing program and reduce their already negative rates further. Have we reached the point of maximum creditability for the central banks? Will governments now have to take over to boost economies by pulling fiscal policy levers now that monetary policy options have been exhausted? It looks like 2016 will be a year of inflection points that need a robust investment policy and process at the helm.
This week the central banks have slipped out of the limelight, but not for long. In the meantime, data is back to the fore and in particular we will be focusing on releases from the US. First up are the growth activity indicators issued on Wednesday, which are expected to make a small improvement, but critically above the threshold for contraction. Then we have the all important employment data on Friday, indicating job growth is firm, with an anticipated number of 200,000. With unemployment at just 5% in the US and weekly jobless numbers close to their lowest levels since the 1970s, the actual numbers are less important to inspire confidence.