#markets #economy #Executive #Digest
The start of the second quarter was marked by a difficult start for Wall Street, as market participants reconsidered their expectations regarding interest rates following a series of strong US economic data and mixed language from part of the Federal Reserve. The escalation of geopolitical tensions in the Middle East has also caused some nervousness in the short term, with concerns that oil prices, at their five-month high, could complicate the Federal Reserve’s (Fed) inflation policy.
In April, attention will focus on the next earnings season in the US, to validate whether the recovery in company results since the second half of last year still has room for maneuver. As usual, the earnings season will start with the main US banks, with JPMorgan, Wells Fargo and Citigroup releasing their results next Friday.
Highlights from next week
US CPI
April 10, 2024 (Wednesday, 1:30 pm GMT)
In February this year, headline inflation in the US increased by 0.4% m/m, bringing the annual inflation rate to 3.2%, above the 3.1% expected. Underlying inflation also rose 0.4% month-on-month, allowing the annual underlying inflation rate to ease to 3.8% from 3.9% in January, but above market forecasts of 3.7%.
Although overall and underlying inflation rates were higher than expected, in detail, there was a marked normalization of non-housing services inflation, with declines being observed as super-core and in the problematic category of homeowner income equivalents.
In order to reassure markets, Fed Chairman Jerome Powell assured several times that despite warmer-than-expected inflation readings this year, inflation was on a “bumpy” path to 2% and that the central bank expects to lower rates “at some point” this year.
This month, the expectation is that the global CPI will increase by 0.4% m/m, which would cause the annual rate to rise to 3.5%. The underlying CPI is expected to increase by 0.3% m/m, which would cause the annual rate to cool from 3.8% to 3.7%.
US Federal Open Market Committee (FOMC) meeting minutes
April 10, 2024 (Wednesday, 19:00 GMT)
At its January meeting, the Fed maintained its rate in the range of 5.25% – 5.50% for the fifth consecutive meeting, as widely expected. The Fed’s updated dot plots showed that the median point at the end of 2024 remained at 4.625% and continued to show that three rate cuts of 25 basis points (bps) are expected this year.
The Fed revised upward its projections for inflation and Personal Consumption Expenditures (PCE) growth for 2024. At the same time, its median unemployment rate was reduced to 4.0% in 2024 and maintained at 4.1% in 2025. The Fed Chairman confirmed that there was an in-depth conversation about slowing down the pace of balance sheet reduction, although no decision has been made on the size of the reduction.
The drafts will be closely analyzed for more details on the Fed’s plans for its balance sheet, additional clues on when the Fed expects to begin cutting rates, and its views on the hotter U.S. data set. than expected.
China CPI and producer price index (PPI)
April 11, 2024 (Thursday, 2:30 am GMT)
China’s inflation data showed that consumer prices reversed into positive territory in February, with annual growth of 0.7%, marking their first increase since September 2023. Producer prices, however, remained subdued, with an annual decline of 2.7%, which represents a deeper contraction compared to the 2.5% drop recorded in January.
With the turnaround in consumer prices in February, attributed to a surge in spending during the Lunar New Year holidays, from rising food prices to travel expenses, all eyes will be on the question of whether the increase in demand can be sustained or whether it is just a one-off episode.
Positive surprises in China’s Purchasing Managers’ Index (PMI) data this week offered some positive signs for China’s economic conditions, but any return to deflation could easily dampen that optimism. In March, consumer prices in China could slow to 0.4% year on year due to falling food prices.
ECB decision on interest rates
April 11, 2024 (Thursday, 13:15 GMT)
Next week, the European Central Bank (ECB) is expected to keep interest rates unchanged for the fourth consecutive meeting, with the deposit facility rate at 4.0%. That said, with eurozone inflation unexpectedly slowing last month, the arguments in favor of the ECB to begin its rate cutting cycle as early as the June meeting were reinforced.
Minutes from the March meeting revealed that policymakers have been laying the groundwork for an imminent easing of policy, stating that “arguments in favor of considering rate cuts were strengthening” and that the date for a first rate cut is now “becoming clearer”. Money markets are currently pricing in an 80% probability of a 25 basis point rate cut in June and forecasting three to four cuts by the end of the year.
While policymakers are unlikely to give the green light to the fight against inflation just yet, any change in dovish tone from the March meeting or hints of discussions about rate cuts at the next meeting will be watched to further validate a shift in policy. politics in June.
Article written by XTB experts
