Bassanese Bites: Breather – May 27 2024
Global markets – week in review
After four consecutive weekly gains, global equities took a breather last week with the S&P 500 inching ahead only 0.03%. Firm US service sector data and “high for longer” Fed rhetoric saw traders take profits in both the bond and equity markets after recent gains.
Probably the main highlight in a data-light week was the strength in the US services sector PMI. The S&P US service sector index blew past market expectations, rising to 54.4 from 51.1. Also concerning was a lift in input costs. The result ran counter to a run of recent softer reports for employment growth and retail sales. Overall, the US economy remains firm, though whether this necessarily implies inflation will prove stubbornly firm remains to be seen.
Also encouraging a degree of market consolidation last week was a chorus of Fed speakers who reiterated the view that – while rate further rate hikes seem unlikely – rate cuts are also unlikely anytime soon.
There was little joy in New Zealand last week either, with the RBNZ Monetary Policy Statement upgrading its inflation and interest rate outlook, while downgrading its growth outlook following a recent stronger than expected inflation report. While markets are toying with an NZ rate cut as early as late this year, the RBNZ currently does not expect a rate cut before August 2025. My own call of rates cuts later this year – in expectation of a speedy fall in inflation due to ongoing recessionary conditions – is not looking too good at present!
In other news, the UK called a surprise early election, with the Conservatives staring down the barrel of a loss to the Labour Party. In Europe, surprisingly firm Q1 EU wage data was not bad enough to rule out a June ECB rate cut, though did raise questions about the size and timing of further cuts.
