Week ending 26th April 2024.

This week was an important one in terms of economic data for the US.  On Thursday, the region’s GDP figure was reported as having increased at a rate of 1.6% year-on-year in Q1, coming in below expectations of a 2.4% increase. Simultaneously, core PCE data for the US – which is the Fed’s preferred measure of inflation and charts the increase in goods and services minus volatile elements such as food and fuel – was reported on Thursday as having risen by an annualised 3.7% quarter on quarter. Many may wonder what this means for the Fed’s next interest rate decision on the 1st of May, whether a slower growth rate paired with a jump in inflation might make a 2024 interest rate cut difficult to sign off on.

Interestingly, markets actually reacted to the figure for PCE that showed that the index held steady year-on-year at a growth of 2.8%, coming ‘off’ because the reading – in comparison to that from previous months that had been revised upwards – appeared flat. However, investors choosing to buy back in was just as swift as it was strong following reports that steadily filtered out as tech earnings season gets underway.

Following the reports, treasury secretary for the US, Janet Yellen, announced that the economy is firing on all cylinders, suggesting that the Fed will secure the smooth landing that has been in their sights for some time. The GDP growth is peculiar, Yellen maintained, although not concerning, noting that the job market is in three-plus-year expansion territory that is empowering consumers’ spending but is not so ‘hot’ that wage growth is putting upwards pressure on inflation. She also urged the US population to consider that things such as shelter costs will moderate throughout the year – ultimately meaning that inflation will not take off in a direction that will spook the Fed.

Over in Europe, France faces a busy few months as Macron’s administration receives both criticism and pressure from the Far Right and Republicans over its current public deficit. Recent forecasts reported by the International Monetary Fund indicate that the country’s deficit will remain above 4% until 2029, with Macron’s government declaring the possibility of a financial shortfall of 5.1% this year – something that may form the basis of a future no confidence vote with respect to the Prime Minister. Despite the region’s credit rating being left unchanged by agencies Moody’s and Fitch last week, we anticipate some short-term noise in markets over the coming weeks while investors distinguish what is actually a tangible concern to the economy and what is not.

CPI data was released last week for Japan, with the core reading coming in below expectations at an increase of 1.6% in April from last year, in contrast to a 2.4% gain in March this year. The slower increase this month is thought to be in part attributable to the fact that the Tokyo Met government decided to make some tuition free for students. Following the ending of their 17 year stretch of negative rates last month, policymakers were perhaps waiting to see the Fed’s next move when they also decided to keep rates at -0.1% to 0.1% on Friday. In response to their keeping of rates unchanged, we saw the Yen slide 160 to the dollar before it rebounded in anticipation of subsequent intervention by policymakers.

Still to come this week we have the Fed’s latest interest rate decision (which is expected to see policymakers holding rates steady), China’s PMI data and Eurozone consumer confidence, GDP & inflation data, earnings season data from the likes of Amazon, Apple, HSBC and Samsung & Q1 earnings for Chinese mega banks.

Nicola Tune, Portfolio Specialist 

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