Friday 21:00 BST
What you need to know
● US and European stocks soft after upbeat week
● US GDP data disappoint
● Euro holds near $1.09 amid lingering optimism on French vote
● Brent oil ends volatile week on firm note
● Treasury bonds and gold edge up
Global stocks traded with a cautious tone at the end of a strong week in which European political worries eased significantly but the outlook for the “Trump trade” came under fresh scrutiny.
But the underlying mood on Wall Street and in Europe was jittery as data showed that US economic growth in the first quarter of the year had slowed to the weakest pace since 2014 — adding to recent uncertainty about the economy following weak data releases.
Analysts highlighted that the first-quarter GDP figures, even after seasonal adjustment, tend to be affected by weather conditions — and said yesterday’s data would be unlikely to prevent the Federal Reserve from aiming to raise interest rates again in June.
But Philip Marey, senior US strategist at Rabobank, argued that the employment growth slowdown in March could not be attributed to the weather.
“This suggests that the disappointing economic data are not just noise but they may be giving signals that the US economy is losing momentum.
“And if we are right in our assessment that the stock market rally is overdone and that it will be difficult for President Trump to deliver on his promises, then the Fed joining the party could make the bubble even more dangerous, ending in an even larger reversal.”
There was a general air of scepticism in the market at the Trump administration’s long-awaited tax reform proposals, released this week.
“The tax plan released by the White House was short on detail, but looked broadly similar to . . . Donald Trump’s pre-election plan,” said Andrew Hunter at Capital Economics.
“With the deep cuts to individual income and corporate tax rates estimated to increase the Federal budget deficit by up to $7tn over a decade, however, there is next to no chance of the plan ever being approved by Congress in its current form.”
The release of the proposals on Wednesday helped curtail a strong rally for major equity indices that was fuelled by the market-friendly outcome of the first round of voting in France’s presidential election last weekend.
Analysts at Danske Bank noted that the big fear in the markets had been a second-round run off between the Eurosceptic Marine Le Pen and the far-left candidate Jean-Luc Mélenchon.
“The independent Emmanuel Macron is the clear favourite over Ms Le Pen — approximately 60 per cent versus 40 per cent, according to polls.
“With Mr Macron so far ahead, markets seem less worried about France and political uncertainty in Europe than they have done for a long time.”
That sense of relief drove global stocks and the euro sharply higher at the start of the week.
In New York, the S&P 500 briefly surpassed the record close of 2,395.96 set at the start of the month, although it could not sustain its momentum in the face of disappointment over the US tax plans.
By the end of trade on Friday, the benchmark US equity index was back down to 2,384 — 0.2 per cent softer on the day but still up 1.5 per cent for the week.
The Nasdaq Composite was a fraction lower after hitting a string of record peaks during the week. The tech-heavy index has now risen for six months in a row, the longest such run in almost four years.
In Europe, the pan-regional Stoxx 600 slipped 0.2 per cent on Friday but, again, was up 2.4 per cent for the week. French stocks outperformed with the CAC up 4.1 per cent over the five days, hitting a nine-year peak in the process.
In Asia, Australia’s S&P/ASX 200 was barely changed as gains for the information technology segment were offset by a drop in materials. Miner BHP Billiton was weaker after this week cutting production guidance for copper, iron ore and coking coal.
Tokyo’s Topix index shed 0.3 per cent as financial stocks dipped, while Hong Kong’s Hang Seng eased 0.3 per cent and mainland China’s Shanghai Composite added 0.1 per cent despite continued worries that Beijing was looking to further damp down on financial market speculation.
Forex and fixed income
The euro was also a big winner after the French vote — hitting a five-month high against the dollar of $1.0950 — although it had edged back to $1.0891 by Friday, up 0.2 per cent on the session and 1.5 per cent for the week.
Thursday’s European Central Bank policy meeting offered little to encourage euro bulls.
Sterling was up 0.4 per cent on Friday at $1.2948, near its strongest since October, and 10-year gilt yields rose 2bp to 1.08 per cent as traders shrugged off news that UK first-quarter UK GDP growth slowed to 0.3 per cent.
The dollar touched a three-week high versus the yen this week of ¥111.77. It was up 0.2 per cent yesterday at ¥111.46 — 2.2 per cent higher for the week.
The sharp improvement in risk appetite earlier this week also weighed on the traditional “havens” of US and German government bonds.
The yield on the 10-year US Treasury, which moves inversely to its price, was down 1 basis point on Friday at 2.29 per cent but still up 5bp for the week. The 10-year German Bund, up 3bp on Friday to 0.33 per cent, was 8bp higher over the five-day period.
Elsewhere, North American currencies were in focus amid confusion over the Trump administration’s position on Nafta drove heavy trade in recent sessions.
The Mexican peso was 1 per cent firmer on Friday at 18.8212 per dollar while the Canadian dollar was down 0.1 per cent at C$1.3650.
Oil prices once again had a volatile week as news of another rise in US weekly gasoline inventories added to concerns about global oversupply.
Brent crude settled at $51.73 a barrel on Friday, up 0.6 per cent, but was down 0.5 per cent for the week.
Gold, although up $4 on Friday at $1,267 an ounce, was down $17 over the week.
Additional reporting by Hudson Lockett in Hong Kong
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