BACK ON TRACK
Last week, the Fed's meeting was seen as indicating that rate cuts would be coming in the second half of 2024, which pushed global bonds yields lower. This, along with better than expected earnings from the likes of Apple and softer employment data, supported US stocks.
The Eurozone exited recessionary conditions as the region showed more signs of a recovery in activity. Meanwhile, inflation fell further in April and ECB officials continued to guide for a rate cut in June.
This week, the economic data calendar is light with Eurozone activity data set to be in focus. Central bank speeches from Fed and ECB Governors may be of note in terms of expected policy adjustments too.
Last week, US equity markets were again supported by better-than-expected earnings, but also the potential for rate cuts later in the year after the Fed guided for this following its policy meeting. The case for lower interest rates was also supported by softer April employment data. The S&P 500 finished the week higher, while the Euro Stoxx 50 was lower after a strong performance in the previous week, which may have led to some profit taking.
US employment data for April was weaker than expected, with fewer jobs added (175K) than projected (240K) and average hourly earnings rose by less than forecast . Unemployment also unexpectedly rose slightly to 3.9%, which is tied at the highest level since January 2022.
By contrast, Eurozone data continued to improve as the region exited recessionary conditions. Q1 GDP expanded by 1.3% q/q annualised compared to a 0.2% contraction in Q4, aided by strong rises in Spain and Ireland.
Meanwhile, Q1 earnings from Apple exceeded low expectations and the company gave a positive outlook for the rest of 2024 underpinned by improving demand conditions. This, along with the announcement of a share buyback and an increased dividend, helped support the stock. Q1 earnings beats more broadly in Q1 have helped bolster US stocks in the past two weeks.
The Fed left its policy rate unchanged and suggested it would keep the rate at the current level until the second half of 2024. Chair Powell also stated that it was "unlikely" that the next move in rates would be up, but that inflation would need to fall closer to the Fed's 2% target before rate cuts could be made.
Eurozone inflation continued to fall, with the headline rate at 2.4% y/y and core (prices excluded volatile energy and food) decelerating to 2.7%, the lowest since February 2022. One ECB Governor suggested that inflation would fall to the 2% target by mid-2025, while comments from other ECB officials last week firmed expectations of a June rate cut.
Overall, the bond market took the central bank comments to mean that rates were going to decline in 2024. As a result, bond yields fell (bond yields fall as bond prices rise) for both two-year US Treasuries and equivalent German bunds.
This week, the economic data calendar is light with Eurozone activity data set to be in focus. Central bank speeches from Fed and ECB Governors may be of note in terms of expected policy adjustments too.
Tue 7th
Eurozone - Retail sales
Germany - Manufacturing orders
Wed 8th
Germany - Industrial production
Thu 9th
US - Initial jobless claims
UK - Bank of England meeting
Fri 10th
US - Consumer sentiment
UK - Q1 GDP
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.