Much has happened over the last few days. The main news was the Greek CDS default, which was akin to a sub-2 earthquake on the Richter scale – registered but not really felt anywhere.
There’s definitely a bit of ’Greek fatigue’. Benjamin Franklin once said “fatigue is the best pillow”, and markets now seem to be taking a well-earned rest from the Greek shenanigans.
There have been some better economic data: UK house price data were stronger, in line with what we have been hearing from the banks and building societies. The ZEW Indicator of Economic Sentiment for Germany was strong, the highest level seen since June 2010 – one for the bulls. US Job Openings and Labor Turnover Survey (JOLTS) also rose again, suggesting a good outlook for US employment (hurrah for the bulls again!).
The other big leg has come from JP Morgan. The US bank surprised investors and the Fed when it announced two days early that it had received regulatory approval for a 20% dividend increase and $15 billion share repurchase plan, beating the Fed to the announcement of the stress tests. Other banks may follow, and we suspect financials, in particular US bonds, to perform well off the back of this.
The Federal Open Market Committee statement contained little about the economic backdrop, and an acknowledgement that the recent rise in energy prices will temporarily push up inflation; however, no changes to policy were announced. There were no dovish surprises, something which has been very common of late, but nothing in the statement suggests that the door for further action has closed. Policymakers are simply on hold for now, awaiting further information. (article continues below)
Despite the improving data in January, the Fed remained very downbeat last month; however, it finally upgraded its assessment of current economic conditions albeit with numerous caveats. For example, they acknowledged that “the unemployment rate has declined notably in recent months but remains elevated” and “strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook”.
Meanwhile, household spending and business investment were said to be advancing. It appears that housing was “depressed” with no acknowledgement made of the stronger data seen recently in that area. We suspect the Fed to remain a bit cautious; they are certainly not getting carried away with all the furore we are seeing about us.
Enough for now. Benjamin, where is that pillow..?
Bryn Jones is fixed income director at Rathbone Unit Trust Management.