Bassanese Bites: Rate reprieve – May 06 2024
Global markets – week in review
The global equity market rebound continued into its second week following a less hawkish-than-feared Fed meeting and a soft US payrolls report.
Markets were relieved Fed chair Powell played down the risks of another rate hike, even while conceding there’s less scope to cut interest rates anytime soon. US bond yields and the $US declined, while equity markets popped higher. Encouraging US corporate earnings – especially among the Magnificent 7 – further supported equity sentiment.
Overall US economic data last week was mixed. The week began with a stronger-than-expected Q1 wage cost index, though this concern eased later in the week with a larger-than-expected fall in job openings and a softer-than-expected growth in average hourly earnings and employment in Friday’s payrolls report. Bottom line: growth is holding up and labour market pressures still appear to be gradually easing.
Of course, the highlight last week was the Fed meeting. While rates were left firmly on hold as widely expected, markets took heart from Powell’s comment that a further rate hike in light of recent higher than expected inflation reports remained unlikely. The Fed still sees inflation coming down, albeit a bit more slowly than expected and it appears is willing to wait and is comfortable with current monetary settings.
Amazon and Apple also both produced earnings beats, with the former also pleasing investors with a share buyback announcement.
In Europe, economic news was also encouraging with a better-than- expected 0.3% gain in Q1 GDP (ending Europe’s mini-recession) and a April CPI result confirming a further gradual decline in annual core inflation from 2.9% to 2.7%. Markets are increasingly confident the ECB will cut rates early next month – well ahead of the Fed.
Meanwhile in Japan, the BOJ is trying to stem the slide in the yen (largely caused by reduced US rate cut expectations) by cloak and dagger intervention.
