US stock markets were softer over the week, with S&P 500 down 2.5%. The technology sector has been hardest hit with the market questioning valuations. NASSAQ Biotech index has fallen 21% from its February peak and the overall NASDAQ fell below 4,000 after reaching 4,359 in early March. US Financial stocks also underperformed towards the tail end of the week after JPMorgan missed revenue estimates. Revenues were softer across the board, with a 17% decrease in trading revenues leading the way. Rates markets rallied, with US 30yr Treasuries falling below 3.50% for the first time since mid-2013.

FOMC minutes were released mid-week and there was no discussion of a rate rise in the coming six months after the end of QE as had been suggested by Janet Yellen and there was a suggestion amongst members that markets may have misinterpreted the fed as overstating the pace of future rate hikes. Most of the participants attributed the majority of recent data weakness to weather related disruptions, although other factors such as higher mortgage rates were acknowledged. Several participants pointed to factors such as elevated levels of long term unemployment and part-time workers as evidence that there might be considerably more labour market slack than the unemployment rate alone suggests. All in all, a more dovish FED than the market had expected, with the market pushing out rate hike expectations.

European credit markets last week were buoyed by rumours that the ECB is moving closer to a Quantitative Easing programme as a measure to spur growth in the face of weak inflation. Reuters reported that the ECB’s had examined the effect of buying EUR 1 trillion of securities over a year, estimating that it would add 0.2% to 0.8% to inflation, although there are questions over whether the private debt market in Europe is big enough for a QE programme of this size. The ECB used meetings in Washington over the weekend to calm these rumours, saying that if they were to take further action it is more likely to cut interest rates, possibly into negative territory, than to commence a QE programme. ECB president Draghi said on Saturday that strengthening of the Euro “requires further monetary stimulus.”

Our stock market outperformed last week, closing up 0.5%, helped by positive domestic data with the key being March employment data. The unemployment rate fell to 5.8% from a revised 6.10%, its biggest decline since August 2010. The large drop in the unemployment rate was partially due to a fall in the participation rate (64.9% to 64.7%) but could only be read as strong. The number of people employed rose 18.1k, versus a median expectation of 2.5k, after climbing 48.2k a month earlier. Adding to the positive tone was February home loan growth, up 2.3% for the month, far outstripping the markets 1.5% estimate. This week is quiet on the data front but we do get the RBA minutes from their April meeting. We don’t expect much change to their discussion given that the strong March employment data occurred after the RBA meeting took place.