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  • Stock markets rose for the second consecutive week, as first quarter earnings reporting season began in earnest. The energy sector posted strong returns for another week, boosted by the continuing rally in crude oil prices. In the UK, the FTSE All Share was the strongest performing developed market in local terms, but weakest in GBP terms, owing to a weaker pound following comments by Mark Carney regarding a May interest rate hike.

    Last week

    - Stock markets enjoyed a broadly positive week

    - Oil stocks benefitted from a continuing rally in oil prices

    - UK Interest rate hike expectations for May 18 plummeted

    - UK retail sales and inflation data came in weaker than expected

    - Chinese GDP data surprises on the upside

    - US ten year treasury yield ended the week at 2018 highs

    - North Korea announces suspension of Nuclear tests


    This week

    - In the US, the earnings seasons ramps up, with a raft of company reports. Companies such as Alphabet, Halliburton, Amgen, Caterpillar, Coca-Cola, Starbucks, eBay, Facebook and Ford are all due to report.

    - We have preliminary GDP data due out from both the UK and US. In the UK, expectations are for QoQ growth of 0.3% and 1.4% growth YoY. This will be keenly watched given weaker UK data in the previous week.

    - Purchasing managers indexes (PMIs) are released from the Eurozone and US, while US durable goods orders are also due out.

    - In terms of central banks, both the European central bank and Bank of Japan are due to meet this week. Commentary from the ECB will be keenly watched with regards guidance on rates and quantitative easing.

    Last Week's Highlights

    - The week began with a relief rally, as the previous Friday’s air strikes on Syria by the US, UK and France was specific and targeted and provoked no response from Russia.

    - Stock markets rose last week, with global shares up about 2.10%, with returns aided by a stronger sterling. In GBP terms, Japanese stocks were the standout, up 2.7%. The US market (S&P 500) followed, up 2.07%, with the FTSE All Share and MSCI Europe ex UK up 1.66% and 1.14% respectively.

    - Sterling weakened on the back of comments from Bank of England chair Mark Carney. In an interview with the BBC, Carney said a rate hike is “likely” this year, but said he didn’t “want to get too focused on the precise timing,” citing uncertainty over Brexit and recent disappointing retail and inflation data. Market expectations for a rate hike in May plummeted to 50%, having been a near on certainty previously.
    - UK inflation data fell to its lowest level in a year. Consumer Price Inflation, the key measure, fell to 2.5% in March, down from 2.7% in February. UK retail sales also missed forecasts, falling 1.2% month on month in March, after cold weather last month kept shoppers home. Analysts had expected retail sales to decline by 0.4%, according to FactSet.
    - Core government bond yields increased. US ten year yields pushed back to 2018 highs, ending the week with a yield of 2.96%. UK yields gyrated through the week on weaker economic data and comments from Mark Carney on rate hikes. The ten year yield did move slightly higher on the week.
    - Brent Crude prices continued to push higher during the week, ending at $74.06. Commodity prices in general surged during the week, amid concern about trade disruption following the US decision to impose wide ranging sanctions on Russian oligarchs, officials, and 12 related companies.
    - Data last week showed that China's economy grew 6.8% in Q1. The figure beat an estimate of 6.7% projected by economists. Markets were also buoyed, after President Xi told the Boao Forum that Beijing is working on plans to improve access for foreign companies to financial and manufacturing sectors. They include a cut in tariffs on car imports and an improvement in protection of intellectual property, among other measures.
    Asset Returns

    Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP.

    Source: Bloomberg.

    UK interest rate hike expectations for May - now a coin toss

    Source: Psigma / Bloomberg

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