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The S&P 500 notched up a fresh record high as spending and inflation data showed lots of the former and not much of the latter. Stand down on the stagflation klaxon, prints like yesterday’s are good for risk and keep the Fed on the leash. Meanwhile corporates are beating on earnings and we now may be set to avoid the earnings recession which was expected.

PCE inflation, the Fed’s preferred gauge, came in at 1.6%. Spending was much stronger with consumer spending +0.9%, the fastest growth since 2009. FOMC meeting decision tomorrow will likely not offer too many surprises. Without inflation really coming through there is not the pressure on the Fed to raise rates. Markets though are still – in my view – underestimating likelihood of a hike this year. Policymakers will have to acknowledge the risks to financial stability and the impressive Q1 GDP print.

The S&P notched up a fresh intra-day record high

Data from China overnight is bad for risk. China manufacturing activity was weaker than expected overnight, with the April purchasing managers indices disappointing. The official PMI came in at 50.1, whilst the Caixin number was 50.2. The gauges are barely in expansion territory and having jumped in March, the figures are a bit of a disappointment. Export orders were weak and it all rather suggests there could be a bit more softness to come.

Eyes now on flash data from the Eurozone for any clues about a rebound in the global economy. Don’t hold your breath.

Alphabet earnings miss forecasts

Alphabet earnings were a big disappointment as revenue growth missed expectations. More competition for sure is a factor as the likes of Amazon and Facebook March forwards. Google will have to get used to competition more – last quarter’s report was a bit of heads up on that front and this quarter’s numbers confirm it.

A tough comparison to last year was also a factor as changes to YouTube a year ago delivering a boost then that was not repeated this year. FX headwinds were also a big factor in the slower revenue growth and should not be ignored. Sales of the Google Pixel have also proved disappointing.

Overall, revenues rose 17% yoy, to $36.3bn, the slowest pace in three years and well short of the 20% expected. Income beat, though, with EPS at $11.90 versus the $10.53 expected, excluding a EU fine of €1.7bn, which brought earnings down to $9.50 a share. Shares in Alphabet were down 7% in after-market trading having hit a record high earlier. The market may be punishing Alphabet just a little harshly when you consider the impact of FX headwinds in these numbers.

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