Bassanese Bites: Record highs – May 20 2024
Global markets – week in review
The global equity market rebound continued into its fourth week thanks to a US CPI inflation report which – for the first time in several months – failed to surprise on the upside. Softer retail spending and a patient Fed chair Jerome Powell further reassured markets that the next move in US rates would likely be down.
As a result, the US S&P 500 unwound all of its recent mini-correction to reach a new record high.
The global market highlight last week was the April US consumer price index report, with headline prices rising a less-than-expected 0.3% (market 0.4%). Core CPI inflation, excluding food and energy, also rose by 0.3% – though this was in line with market expectations – allowing annual core inflation to ease to 3.6% from 3.8%.
Despite a flattening in house prices and rents over the past year, housing inflation in the official CPI statistics remains disappointingly firm – which hopefully just reflects longer the usual lags. Otherwise, the details of the CPI report – along with those of producer prices also released last week – suggest the more important Fed’s preferred measure of inflation (the PCE) is shaping up to be fairly benign later this month, with a gain in core prices of potentially only 0.2%.
In other news, Fed chair Powell remained fairly relaxed and comfortable about the upside inflation misses in Q1, noting that policy is restrictive and we likely just need to be patient. Also helping Wall Street sentiment was a surprisingly soft April retail sales report, with flat spending (market +0.4%).
Outside the US, China’s monthly ‘data dump’ was mixed, with solid industrial production yet soft retail spending – the latter likely not helped by ongoing woes in the property sector. China’s solution so far is to place band-aids over the housing problem and keep the economy ticking over through higher exports. The latter, in turn, could lead to renewed trade tensions if China is accused of dumping cheap exports – like steel, electric cars and solar panels – onto world markets. The US has already responded though a lift in tariffs.
Last Friday, China announced further dubious measures to support the housing sector, such as allowing local governments to buy excess apartments and further help for builders to finish uncomplete projects.
