The U.S. markets once again closed at record high last night on the back of the disappointing US economic data. Bad news is a good news for the markets, as this has pushed the expectations that the Fed will not rush anytime soon in raising the interest rate. The expectations of the Fed raising the interest rate next month are almost next to none.
Investors are certainly looking for evidence that the first quarter growth will have no impact on rest of the year and in search of this, they are dissecting the upcoming data to support their view. On Wednesday, the minutes from the Fed have also not added to their confidence by showing some mixed views amid the policy makers. The economic data released yesterday have further fuelled those concerns as both existing home sales and Philadelphia Fed’s manufacturing index printed lower reading than the previous month. The initial jobless claims data was also on the softer side so overall the array of economic data was somewhat disheartening.
The weak economic data obviously has made its impact on the U.S. 10 treasury yield and it has pushed the yield lower by six basis points. Having said all that, it is still way to early to draw any kind of conclusion for the second quarter’s GDP, as we still have much more data to go through before we can possibly say that the second quarter’s GDP growth is also cursed by the first quarter.
In a separate report on Thursday, the IMF has reported that the Russian economy will turn its corner in 2016 but the country’s economy will shrink by 3.4 percent this year. The upgrade for the Russian economy is mainly due to the strength in the Russian rubble and its economic data turning its corner. The IMF also revised their inflation forecast to 12.5 percent from their previous level of 16 percent. The Russian economy has also contracted much less than many were predicting in the market. The GDP for the first quarter contracted by only 1.9 percent. Improvement in oil price has also fostered the value of the Rubble.
As for the other side of the Atlantic, the Bank of Japan has kept its stimulus package unchanged and completely intact. This was widely inline with the market expectations and the BOJ has also revised their forecast for the economy. This brings the question if the BOJ is finally done with their massive stimulus package? We do not think that is the case as there are still many challenges to overcome before the bank can call it a day.