“Money its a crime share it fairly but do not take a slice of my pie” Pink Floyd

 A volatile week for equity markets, the S&P 500 traded in a 5% range, finishing the week almost where it started. European markets traded in a tighter range but likewise finished the week largely unchanged. The focus remains on the bond market for investors. Buffet warns us bonds is not the place to be now, for a man that made his name buying equities, no real surprise there. Bond prices did fall, yields on the 10-year closed at 1.56%, up 9 basis points. The latest stimulus package of 1.9 trillion dollars to help support the US economy will likely be agreed this week. We did muse weeks ago that this news may not be greeted with the enthusiasm one might expect. If congress did not agree the package, markets may feel disappointed, agree it and markets will concern themselves even further that greater inflationary pressures are around the corner.

It will be interesting to see how equity markets react on Monday to the news that the stimulus package is all but agreed. Bonds are likely to sell off more and equities may once again take fright. Jerome Powell this week reiterated the Federal Reserve position that he expects any inflationary pressures to be temporary. The Fed are happy to tolerate inflation rates above target for a period.

There is no suggestion that the Fed are looking to reduce their bond buying program currently. We would suggest the best signal that markets could get the Fed are comfortable the recovery is under pinned and that is they do start to discuss the idea of tapering the purchase program. The initial knee jerk reaction from both bonds and equities could well be a sharp selloff, rather as was the case in 2013, which led to the taper tantrum. Once the dust settles equity and bond markets will stabilise and as the economic recovery continues so will the rally in equity markets.

This week the Consumer price report for February is expected to report a jump to 1.7%, ever closer to the 2%, the Fed’s target. The Michigan Consumer sentiment index is expected to show an improvement. After last week’s budget announcement, the attention will turn to monthly GDP, expectations are that the economy has slipped back into contraction. Industrial production and construction output along with the latest trade data will be closely followed.

China releases its latest import export data this week, this can provide an insight of the post pandemic economic recovery, exports are seen rising sharply in January and February.

For Europe, the focus on Thursday will be the ECB rate decision followed by the usual press conference. As the European economy continues to struggle along, the message will remain of one of support.