Thursday, May 2: US markets were weaker yesterday as Fed member Jerome Powell denied that there was a “strong case” to cut interest rates in the near term with tepid inflation seen as a product of transitory factors. Markets had been hopeful a doveish tone would be taken by governors, enhancing the chance of a cut in the fed funds rate. Following this development, Asian markets were mixed Hang Seng(+0.86%), Nikkei(–0.22%) and ASX(-0.56%). UK indices took impetus from the US, and opened lower as Paddy Power Betfair(-4.76%) and a raft of retail and mining stocks saw the FTSE 100 close lower(-0.46%). The Gambling giant sunk as it reported its UK online sports betting business was affected by “unfavourable results” in sporting events, despite a 17% rise to in Q1 revenue attributed to growth in the US. Football results were favourable for punters in March, as the outbreak of equine flu in February also proved to have an adverse effect on the sports business.
The Bank of England held rates at 0.75%, though growth and inflation is expected to accelerate over the next two years. If the economy continues on this trajectory, Governor Mark Carney warned that interest rate increases could become more frequent than expected. The Bank lifted its UK growth forecast to 1.5%, up from February’s forecast of 1.2%, partially due to a global economy which is now brighter than at the turn of the year. Stockpiling pre-Brexit was noted as yielding a short term boost to the economy, but looking through this factor the Bank expects UK growth to be driven by a global economy on the up.
PMI data for the UK’s construction sector came in at 50.5, ahead of Reuters forecast 50.3, an improvement over March’s 49.7 read and the highest print since the turn of the year. House building was at a four month high, though new orders, commercial activity and civil engineering contracted. Commercial activity and civil engineering stayed their downward courses, as political uncertainty impacted business spending decisions. Sterling was on the slide into the PMI data release and continued lower against both the euro and the US dollar.
Following May day holidays on the continent European equities were mixed today, with the FTSE 100 -0.46%, the CAC 40 -0.85% and the DAX 30 +0.01%.