After rebounding strongly in March, global stocks took a breather in the first full week of April.
The three major U.S. averages all fell more than 1% last week after gaining about 7% in March, so some of the decline could be attributed to profit-taking. Stocks in Europe and Asia were also down on the week despite ending the week on an up note. Bond prices, however, continued to move higher, with yields on U.S. Treasury securities falling about 10 basis points on the long end and German and Japanese yields approaching record lows. Oil prices gained nearly 8% after jumping 6% on Friday to close the week just shy of $40 a barrel for U.S. crude after Federal Reserve Chair Janet Yellen made some upbeat comments about the economy the night before.
The Federal Reserve released the minutes of its March meeting, which indicated that the Fed is unlikely to raise interest rates when it meets again in two weeks. The minutes of the March 15-16 gathering, at which the Fed also took no action on rates, showed concern about the pace of economic growth, both in the U.S. and abroad, as the reason for the wait-and-see position. “Many participants expressed a view that the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook,” the minutes said. “A number of participants judged that the headwinds restraining growth and holding down the neutral rate of interest were likely to subside only slowly. In light of this expectation and their assessment of the risks to the economic outlook, several expressed the view that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.” The Fed’s next meeting is April 26-27.
The following day, however, Janet Yellen made it clear that the Fed is on track to raise interest rates again, although she didn’t say when. “The U.S. economy has continued to progress in a satisfactory way,” she said Thursday night. “We continue to see good job performance, some evidence of inflation moving up, so that was our expectation when we raised rates in December. We think the gradual path of rate increases will be appropriate. We remain on a reasonable path and I don’t think December was a mistake.”
As it was the first week of the month, there were only a few U.S. economic reports released last week. The Institute for Supply Management’s non-manufacturing index, which tracks the biggest share of the economy, rose a little over a point in March to 54.5. A week earlier, the manufacturing index jumped more than two points to 51.8, the first time it has been in expansion territory since last summer. Separately, factory orders fell 1.7% in February. Unemployment claims fell by 9,000 to 267,000 for the week ended April 2, slightly below expectations.
Reports/dates/facts/links worth paying attention to over the next week:
1. April 12: U.S. Treasury budget report for March.
2. April 13: Retail sales for March; producer price index for March; Fed Beige Book.
3. April 14: Weekly unemployment claims; consumer price index for March.
4. April 15: Industrial production for March; Empire State manufacturing survey for April; University of Michigan consumer sentiment index for April, first reading.