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Economic data ranging from US retail sales to German business and Apr China activity are likely to be in focus to gauge the strength of the global economy in Q2. Apr US consumer prices (Wed) are set to be a key point of interest in relation to future Fed interest rate policy.
ECB speakers continued to guide for a rate cut in June while some Fed speakers expected rates to be reduced later in 2024. As a result, bond yields fell for both 10-year US Treasuries and equivalent German bunds to the lowest levels in nearly a month.
Eurozone retail sales recovered in March, aided by a rebound in Germany. This further supported the idea that growth momentum in the region has picked up in recent months. However, data from Germany also showed that industrial activity in the country remains lacklustre.
In the US, the Senior Loan Officer Survey showed that credit conditions continued to worsen in Q1. That is, lending standards became more stringent but loan demand also fell, suggesting that financial conditions were restrictive for growth.
The S&P 500 finished the week just over 1.9% higher, while the Euro Stoxx 600 finished up 3.4%, notching its' sixth straight session of gains buoyed by lower volatility, and an expected rate cut in June.
US equity markets were again supported by better-than-expected earnings, but also the potential for rate cuts later in the year after the Fed guided for this following its policy meeting. The case for lower interest rates was also supported by softer April employment data.
NO NEWS IS GOOD NEWS
Last week, in the absence of major data, global asset markets continued to rally as softer labour market data and Fed guidance continued to support the narrative of rate cuts later this year.
This week, the economic data calendar is light with Eurozone activity data set to be in focus. Central bank speeches from Fed and ECB Governors may be of note in terms of expected policy adjustments too.
Overall, the bond market took the central bank comments to mean that rates were going to decline in 2024. As a result, bond yields fell (bond yields fall as bond prices rise) for both two-year US Treasuries and equivalent German bunds.
Eurozone inflation continued to fall, with the headline rate at 2.4% y/y and core (prices excluded volatile energy and food) decelerating to 2.7%, the lowest since February 2022. One ECB Governor suggested that inflation would fall to the 2% target by mid-2025,
The Fed left its policy rate unchanged & suggested it would keep the rate at the current level until the second half of 24. Stated that it was "unlikely" that the next move in rates would be up, but that inflation would need to fall closer to the Fed's 2% target before rate cuts
Meanwhile, Q1 earnings from Apple exceeded low expectations & the company gave a positive outlook for the rest of 2024 underpinned by improving demand conditions. This, along with the announcement of a share buyback and an increased dividend, helped support the stock.
By contrast, Eurozone data continued to improve as the region exited recessionary conditions. Q1 GDP expanded by 1.3% q/q annualised compared to a 0.2% contraction in Q4, aided by strong rises in Spain and Ireland.
US employment data for April was weaker than expected, with fewer jobs added (175K) than projected (240K) and average hourly earnings rose by less than forecast . Unemployment also unexpectedly rose slightly to 3.9%, which is tied at the highest level since January 2022
The S&P 500 finished the week higher, while the Euro Stoxx 50 was lower after a strong performance in the previous week, which may have led to some profit taking.
Last week, US equity markets were again supported by better-than-expected earnings but also the potential for rate cuts later in the year after the Fed guided for this following its policy meeting. The case for lower interest rates was also supported by softer Apr employment data
The Eurozone exited recessionary conditions as the region showed more signs of a recovery in activity. Meanwhile, inflation fell further in April and ECB officials continued to guide for a rate cut in June.
BACK ON TRACK
Last week, the Fed's meeting was seen as indicating that rate cuts would be coming in the second half of 24, which pushed global bonds yields lower. This, along with better than expected earnings from the likes of Apple & softer employment data, supported US stocks