With Japanese markets closed for Golden Week, Asia markets have had a quiet but positive session, following on from a record close for the S&P500 on Friday, after the latest US Q1 GDP numbers showed that the US economy expanded at faster rate than had been expected.
An expansion of 3.2% came in well above even the most optimistic expectation, though the surprise was tempered somewhat by a softening in core prices which came in at 1.3%, down from 1.8% in Q4, while personal consumption more than halved from 2.5% to 1.2%.
The slowdown here is a particular concern given how much the consumer tends to drive the US economy, which suggests that Q2 might more difficult to sustain. The extent of the expansion in Q1 is all the more surprising given that Q1 has tended to be a weak quarter for the US economy. That has certainly been the case over the last five years, which has shown that a weak Q1 has generally been followed by a strong middle.
The slowdown in personal consumption can in part probably be explained by rising oil prices, which appears to have slowed spending in other areas, as higher gasoline prices erode into consumers discretionary spending.
European markets have opened in a rather subdued manner, with most attention on the Spanish market after the weekend elections saw Pedro Sanchez’s Socialist party gain 28% of the votes, and which has seen the IBEX 35 drop sharply on the open. While falling short of a majority there is a concern that any alliance that Sanchez is able to cobble together might come with an element of an antibusiness bias. Any electoral alliance is still some way off given the proximity of European elections, however it is a new factor that investors will have to weigh up when looking to invest in European markets.
The FTSE 100 is modestly higher after a weak end to the end of last week, with most investor attention on this weeks Fed rate decision, and the US payrolls numbers at the end of the week. It’s also a big week for the oil and gas sector after some weak numbers from Total and Exxon Mobil (NYSE:XOM) last week as attention turns to the Q1 numbers from BP (LON:BP) and Royal Dutch Shell (LON:RDSa) later this week.
US markets look set to open modestly higher this morning with the main focus set to be on the latest developments in the Occidental (NYSE:OXY), Chevron (NYSE:CVX) and Anadarko love triangle, with Anadarko Petroleum (NYSE:APC) management expected to endorse the higher offer from Occidental. While this might be bad news for Chevron’s bid it may be a mixed blessing in that the price tag is an extremely high one, at a time when oil prices are near multi month highs and the race for renewables is likely to accelerate. Occidental also has much higher debt levels than Chevron so would be much more susceptible to a downturn in crude prices.
We also have the latest numbers from Spotify (NYSE:SPOT), which is expected to announce its latest numbers, against a backdrop of an increasingly competitive streaming landscape as companies like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) ramp up their own free services.
This probably helps explain Spotify’s move into podcasts with the acquisition of Gimlet Media and Anchor, in order to help mitigate this trend, however unless they can start to gain traction in new markets like India and China, user growth could start to slow down as its more established markets start to plateau.
On the data front the latest US PCE inflation numbers for March which are expected to show that prices in the US economy remain well under control, slowing from 1.8% to 1.7%, and making this weeks Fed decision a much easier decision to make. At its last meeting the Fed warned of a slowdown in the US economy and downgraded their growth forecast. Given last Friday’s better than expected GDP number this may well have been premature, so it will be noteworthy as to whether Fed officials resile from this caution or revise their forecasts and outlook as a result.
Dow Jones is expected to open 20 points higher at 26,563
S&P500 is expected to open 1.5 points higher at 2,941.5