The U.S. economy expanded at a 2.2 percent annual rate in the first quarter, slightly weaker than expected. Consumer spending which accounts for about 70 percent of U.S. economic activity, increased at a 2.9 percent rate – contributing two percentage points to the overall growth rate.
The FOMC’s relatively anodyne conclusions left world markets with little new to chew on Thursday, with some poor European banking results for Q1 probably get more attention. Broadly, world stocks were a touch higher while the dollar and US Treasury yields were slightly lower. European bank stocks fell 2% and dragged down European indices. Euro sovereign yields were slightly higher, with markets eyeing Friday’s Italian bond auction. Volatility gauges were a touch lower and crude oil prices nudged up.
For all the headline attention on euro zone political heat over the next six weeks or so (Spain is already in the spotlight, Sunday is the first round of the French presidential elections, Greece goes to the polls on May 6, Ireland votes on the EU fiscal pact on May 31 etc etc), global investors may be better rewarded if they follow the more mundane runes of the world’s manufacturing cycle for tips on market direction.
Just as global markets nurse a hangover from their Q1 binge on cheap ECB lending — a circa 1 trillion euro flood of 1%, 3-year loans to euro zone banks in December and February (anodynely dubbed a Long-Term Refinancing Operation) — there’s every chance they may get, or at least need, a proverbial hair of the dog.