Week ending 17th May 2024.

This week, financial markets were focused on the latest US consumer price data. After previous readings came in hotter than expected in recent months, Thursday’s report bucked the trend, allowing investors to breathe a sigh of relief. April’s inflation figures revealed a modest rise of 0.3%, falling short of the anticipated 0.4%, while core inflation (excluding food and energy) rose by 0.3% as expected. On an annual basis, prices rose by 3.4%, matching forecasts and slightly below the previous month’s 3.5% rate. This data reinforced the notion that inflation is on a downward trend, albeit a bumpy one, paving the way for potential rate cuts by the Fed. It seems like the Fed’s aim for a “soft landing” for the economy might just be within reach.

The Consumer Price Index (CPI) report’s indication of easing inflation has strengthened the belief that the Federal Reserve might initiate an interest rate cut by September. The prospect of a more accommodative monetary policy led global stock markets to soar to record highs. This sentiment was further supported by Wednesday’s retail sales data, which showed an unexpected stagnation in April. The data indicated that consumers were reducing their discretionary spending. Sales at primarily online retailers declined, whereas sales at restaurants and bars continued to slow.

Meanwhile, over in China, the Hang Seng closed the week up 3.11% as the government pulled out all the stops to stabilise its property sector, allowing local governments to purchase apartments, easing mortgage rules, and promising more actions to complete unfinished homes. The central bank lowered down payment requirements and pledged to scrap the nationwide floor level of mortgage rates, allowing cities to make their own decisions on what mortgage rates to charge.

Additionally, China saw positive news in the form of industrial production data beating forecasts. Industrial production surged by 6.7% year-on-year in April, exceeding market forecasts of 5.5% and accelerating from a 4.5% gain in the previous month.

In Europe, industrial production rose by 0.6% month-on-month in March this year. However, this increase is not enough to make up for the drop in January, leaving production 1.6% below December’s peak. The recent uptick was driven by a 12.8% increase in Irish production.

Looking ahead, the market will focus on upcoming economic indicators, including the UK’s CPI, Japan’s CPI, and balance of trade. We can also expect PMI data from the UK, Europe, and the US The minutes from the Fed’s last meeting will be revealed on Wednesday, and investors will be looking for further clues on the future path of rates. On the 22^nd of May, semiconductor giant Nvidia is set to release its Q1 earnings, which are expected to be heavily anticipated after its previous earnings report triggered a global market rally.

Kate Mimnagh, Portfolio Economist

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