- Fed opens door slightly for increase in asset purchases
- Stocks lower despite upward surprise in ISM
- U.S. yields at five-month low
- Decline in U.S. vehicle sales suggests weak start to Q2 consumption
- Focus turns to ECB today
The Fed statement last night was somewhat surprising as the tone on growth and employment was kept fairly unchanged despite the recent weakness in data – see Flash Comment. However, the Fed turned more dovish on the policy description as it said it is prepared to either increase or reduce asset purchases. This opens a door for a rise in asset purchases if growth deteriorates more than expected. However, as we expect the soft patch to be fairly short, we expect the Fed to keep the current pace of asset purchases until the end of the year and then start reducing its purchases.
U.S. stocks were under pressure for most of the day following a weaker-than-expected ADP employment report that showed the private sector only added 119k jobs in April. Even an upward surprise to ISM manufacturing didn’t halt the move lower. ISM fell only slightly from 51.3 in March to 50.7 in April. Consensus was at 50.5 but some very soft regional surveys had clearly indicated downside risks. We believe ISM is likely to go sideways before turning higher in late summer.
U.S. bond yields reached a five-month low at 1.61% as the declining trend continued yesterday on the back of weak ADP job numbers. The Fed statement had very little impact on the bond market as a softer tone was expected in the market. EUR/USD also reacted very little to Fed’s message but has given up some of yesterday’s gains in overnight trading.
U.S. vehicle sales released last night were soft and point to a weak start for private consumption in Q2. Sales fell to 14.9m in April (consensus 15.2m) from 15.2m in March (annualised levels).
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