This week’s economic data was like a comforting bowl of Goldilocks’ porridge, in that it wasn’t too hot or too cold: economic growth is clearly slowing, but it isn’t collapsing.
This suggests to us that central bank policymakers will be inclined to slow their aggressive interest rate increases and more importantly, may look at reducing interest rates before the year is out – which should be positive for global equities.
As with the ISM manufacturing reading on Monday (3 April 2023) please see here, the ISM services index came in below market forecasts. Although still above 50 (the line separating expansion and contraction) the 51.2 reading for March compares to 55.1 in February and economist expectation of 54.4. Looking at the sub-components of this index, while new orders did fall sharply from 62.6 to 52.2, on a positive note employment dropped to 51.3 from 54 and prices paid declined to 59.5 from 65.6 (the lowest level since July 2020), suggests that the tight US employment market is finally starting to cool, while underlying inflation pressures are declining.