Market Update – 1st May 2024.

Following on from promising GDP growth in Q1 that exceeded forecasts, reports on Tuesday revealed that China’s manufacturing sector has expanded for the second month in a row at an impressive pace that marks its fastest increase in 14 months. In relation to figures for PMI, anything above 50 indicates an expansion while anything below 50, a contraction. The Caixin PMI survey, which surveys over 600 private and state-owned manufacturers, documented that the region’s manufacturing index rose to 51.4 in April from 51.1 the previous month, something which was informed in large part by strong growth in new export orders.

While headwinds along its recovery might still be expected, the government have recently suggested that even more stimulus measures may be introduced to support the economy. At the latest Politburo meeting, officials stated that they will look to be flexible with policy, suggesting that they may lower borrowing costs even further, ramp up support for the property sector and ensure solid implementation of consumer product trade-in and an equipment upgrade programme that may boost domestic demand.

The spotlight this week also shone on the economic data coming out of the Eurozone. Eurostat reported on Tuesday that the region enjoyed a 0.3% growth in Q1 of 2024, putting an end to its shallow recession caused by a 0.1% shrinkage towards the end of last year. The so-called ‘big four economies’ (France, Germany, Italy and Spain) played a crucial part in the comeback, with Germany in particular rebounding at a quarterly rate of 0.2% in the three months to March after sitting in contraction territory in the previous quarter.

In further news, while headline inflation for the Eurozone remained steady at 2.4% for April, the core rate – minus volatile elements like food and fuel – continued to show signs of cooling. The core rate came in at 2.7% in April versus March’s 2.9% increase. In response, the market again priced in the idea of a rate cut this year, with investors raising the hope that it could be as early as the 6th of June when the ECB next meets. The ECB, meanwhile, consistently reiterates a data dependent stance in relation to monetary easing, with Christine Lagarde carefully positioning a cut this year as a possibility as long as the central bank does not observe any shock developments or data that goes against the latest disinflationary environment.

Finally, over in Ireland, GDP rose by 1.1% in the three months through March, underpinned by notable upticks in information and communication industries. The growth is a marked improvement from that of Q4 of 2023, when the region contracted by 3.4%.

Still to come this week we have the hotly awaited Fed interest rate decision and US non-farm payrolls, Eurozone’s unemployment rate and the results of China’s Caixin survey’s services data.

Nicola Tune, Portfolio Specialist 

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