Equities markets stabilised during April. Although the regional banking sector in the US continued to generate headlines, with First Republic the latest to require a rescue package, market fears about broader contagion appear to have reduced.
As tensions ease on one front, another American-made problem has crept onto investors’ radar. With painful predictability, the combination of a Democrat President and Republican-controlled House of Representatives has led to a re-run of the 2011 and 2013 debt-ceiling ‘stand-offs’. Leaving to one side the mindboggling gall of the GOP rediscovering the virtues of fiscal rectitude after the profligate Trump years, these political shenanigans will likely cause market jitters until a resolution is reached.
Such an outcome remains by far the most likely, if only because the alternative of a US default would be an act of economic self-sabotage. The nagging wildcard is how the MAGA-caucus in Congress behave – would they really be willing to let Rome burn in the hope it helps their Caesar win re-election in 2024?
These unnecessary distractions have been frustrating as economic data has been, with the usual puts and takes, fine. The US economy continues to grow at a decent rate and inflation has continued to moderate. In the UK, inflation remains stubbornly high but will improve as the year progresses. Employment remains strong and the consumer appears to retain a healthy appetite. This echoes the messaging we have heard from corporates reporting during the month.