United States: The week ending April 29 released economic data highlighting first quarter performance as well as details of the much-anticipated Federal Open Market Committee (FOMC) meeting. First estimates on first quarter performance revealed a slow down in economic activity, while inflation picked up. Gross domestic product (GDP) was recorded at 1.8 per cent, much lower than the 3.1 per cent at the end of the fourth quarter. The slow down in growth was due largely in part to higher energy prices and reduced government spending. Forecasts for GDP were as high as 4 per cent, so the outcome was far below expectations. Apart from the surge in energy prices and weak government spending, the first quarter was also hampered by bad weather, which adversely impacted construction activity.
Personal consumption recorded a 2.7 per cent increase; down from 4.0 per cent at the end of 2010. Rising commodity prices in the first quarter, particularly energy prices, eroded consumer spending. This came after a strong fourth quarter of 2010, where seasonal spending, driven by solid retail sales boosted personal consumption. The steady momentum into the first quarter was in doubt though, but higher inflation eroded disposable incomes, reducing consumer spending. Inflation levels, in the first quarter of 2011 peaked to 1.5 per cent, from 0.4 per cent three months earlier. This was largely due to higher energy prices, which saw crude oil prices surge in hindsight of the Middle East unrest.
Deflation concerns
The Fed released its statement following the FOMC meeting on April 27. The much-anticipated meeting marked the first of a sequence of press conferences where chairman Ben Bernanke addressed the outcomes. Following the meeting, Bernanke outlined the Fed's maintenance of interest rates between 0 per cent and 0.25 per cent and the intention to cease its QE2 injection in June. With inflation picking up, at least in the near-term, the stimulus provided by the Fed did help alleviate deflation concerns. Although unemployment remains high, and is likely to be so for some time, the Fed highlighted its intention to tackle inflation as its priority as opposed to the high jobless rate. Medium- to long-term inflation expectations have been termed "stable," while the spike in inflation has been termed "transitory."
In terms of monetary policy tightening, Bernanke hinted at the possibility of raising rates should economic conditions require it. Also, he did not rule out the possibility of a third round of quantitative easing. Data released on the housing market, showed slight improvement from the previous month, although the sector remains in the doldrums. New home sales increased 11.1 per cent from a drop of 16.9 per cent (all time low) in February. Pending home sales increased 5.1 per cent in March from a month earlier, although it remains very weak, down 10.5 per cent from a year ago. Confidence levels have remained flat in April, increasing to 69.8 from 69.6, as measured by the University of Michigan Confidence index. For the first week of May, the labour report will be anticipated along with Institute of Supply Management (ISM) surveys. ISM surveys will be closely looked at as expected effects from the Japanese quake may be reflected. The labour report should show no real change in the rate, but an incremental decline in non-farm payrolls is expected. With economic growth levels lower, the labour market will be closely looked at for any slowdown in the recovery, as labour tends to lag growth.
Trinidad & Tobago
In its latest report, the Central Bank announced that inflation moderated in the month of March for the third consecutive month. Headline inflation fell to 9.4 per cent from 10.7 per cent in February. Food inflation, the key drive of inflation in T&T, slowed to 21.3 per cent in the 12 months to March 2011, from 25.1 per cent in the previous month. Core inflation fell marginally in March to 2.7 per cent from 2.8 per cent in February. Credit to the business sector grew by 1.9 per cent in February-the most significant monthly increase since September 2010. Year-on-year, however, business credit continues to decline, contracting4.8 per cent. Consumer credit increased for the fifth consecutive month, expanding by 3.9 per cent in February. The Central Bank left the repo rate unchanged at 3.25 per cent.
Weekly International Equity Watch
The US equity market saw its largest weekly return during the week ending April 29, for the month, as the S&P 500 index gained 1.98 per cent of its value, closing at 1,363.61. Stocks edged higher during the week as key earnings came in better than expected and personal income and spending rose in March. UPS reported a rise in first quarter revenue with earnings coming in at US$0.88 per share despite sales coming in slightly lower than expected. Ford also reported its best first quarter results in 13 years beating analysts' estimates with its earnings of US$0.62 per share. By the middle of the week, the highly anticipated Fed announcement on the details of the bond programme and its expiration as planned in June provided a further boost to the stock market.
By the end of the week, stocks continued to make modest gains even with the latest first quarter gross domestic product (GDP) growth report coming in slightly lower than analysts expected. Strong earnings pushed stocks even higher on the last trading day of the week and was supported even further by better than expected economic data. The one-year high of 1,363.61 seen on April 29 brings the year-to-date return on the S&P 500 to 8.43 per cent. Asian stocks saw mixed responses to the Fed's decision to leave interest rates unchanged at near zero "for an extended period" with the MSCI Asia Pacific Index closing the week at 139.48 representing a weekly gain of 0.71 per cent. Hong Kong's Hang Seng Index was down 1.73 per cent while the Japanese Nikkei 225 recorded a gain of 1.83 per cent. European stocks saw its second weekly gain, with the Stoxx Europe 600 Index advancing 1.2 per cent to 283.78 as companies from Ericsson AB to Volkswagen AG reported better than expected earnings.
T&T stock market
The Composite Index increased during the week ending April 29, rising by 0.40 per cent to a value of 898.29 as three stocks declined and five advanced. Angostura Holdings Ltd (AHL) was the weekly volume leader with 770,304 shares trading with a closing price of $6.55 marking a 6 cents drop in the price. CCFG saw the largest price appreciation, rising by 11.11 per cent during the week to a close of $0.20. GHL saw the largest price decline dropping by 1.72 per cent to a close of $14.25 with a total of 36,090 shares trading for the week. Year-to-date, the T&T Stock Exchange Composite Index is up 7.50 per cent.