The events of the past few days have done nothing for the joie de vivre of the capital markets. What looked like being a particularly solid month for equity markets has turned decidedly less so. Bond investors likewise have suffered in the past few days despite the weaker than expected US and UK GDP data. For a change it was not so much about the ongoing ramblings with regard to the Hellenic Republic that caused the jitters. On Wednesday expectations were for a weaker UK GDP figure, in the end the figure came in at 0.3%, the weakest in almost 3 years. This was followed later in the day by an even weaker report for the first quarter in the United States. Wall Street analysts had expected the US economy to grow at 1% in the first quarter, in the end it barely grew at all; the figure came in at 0.2%.
In the evening on Wednesday the Federal Reserve announced their latest interest rate decision, and to no surprise after the recent weakness in economic data, there was no change. The Federal Reserve in their accompanying statement acknowledged that the US recovery had lost momentum from the start of the year. Much has been made of the desire to see inflation return to the global economy, as yet there has been little signs of it. The lack of inflationary pressures may be a lead indicator for a weaker economy, as the bankers fear. Avoiding the deflationary spiral is something QE has been meant to affect, far from raising rates one has to wonder if the Fed has considered the prospect of QE 4.
On a more positive note earnings from companies remain robust, except if you happen to be a twitter shareholder. Twitter’s results were tweeted on its own website on Tuesday evening leading to a sharp drop in the share price that carried on into Wednesday. Twitter reported a loss of 25 cents a share but revenues according to CNBC missed even the most pessimistic of analyst expectations. A combination of a lack of an ability to attract new subscribers and a change in advertising charges caused the company to miss expectations. Companies such as twitter receive high valuations in the early days as they are expected to grow revenues strongly and then in the future as the company matures turn those revenues into profits. If revenue growth slows, so do expectations going forward for profits. Aside from Twitter, blue chip companies such as BASF, Royal Dutch, BP and even Barclays Bank are managing to at least meet analyst expectations and in some instances pass them.
The latest election update from the bookies continues to suggest that the conservatives will win more seats than labour, but do not back David Cameron to become the next prime minister. The odds on favourite for the next prime minister is Ed Miliband, he as yet may be ruling out a coalition with the SNP, the book makers may not be.