Market Update

It's been an eventful week, with recent strong economic data allowing Jay Powell, the Chair of the Federal Reserve (the US central bank), to express optimism about the economic outlook. Simultaneously, he effectively reminded the market of the famous mantra, "don't fight the Fed," reiterating that it's far too early to consider tightening monetary policy.
The rationale behind this stance is quite clear. The core Personal Consumption Expenditure (PCE) reading, the Fed's preferred measure of inflation, once again fell below its 2% target, registering at 1.8%. Although it's expected that this inflation measure will temporarily surpass the 2% target in the coming months due to last year's distorted prices, these effects are anticipated to be transitory, resulting in a quick return to more moderate inflation levels.
Moreover, the contrast between the US and Eurozone economic performance is notable. While it was announced yesterday that the US economy expanded by a robust 6.4% during the first quarter, today's data release reveals that the Eurozone's economy contracted by 0.6% over the same period.
The US economic recovery has been bolstered by various fiscal stimulus payments to American households over the past year, which have boosted both the savings rate and consumer spending. An interesting observation is that Visa, the card payment company, reported a significant increase in debit card spending relative to credit card spending. This suggests that US consumers are exercising caution, which we view as a positive sign. It's more likely to result in a sustained consumer recovery rather than a rapid splurge that quickly fizzles out.
Regrettably, despite this week's positive economic data and strong corporate results, as indicated in the accompanying table, equity markets concluded the week with minimal gains. This occurred after Robert Kaplan, the President of the Federal Reserve Bank of Dallas, contradicted Jay Powell by suggesting that the Fed should begin tightening monetary policy.
This development shouldn't have caught markets by surprise, as Kaplan had previously hinted, through the Fed's dot-plot, that US interest rates should be raised. Additionally, the Fed has a dual mandate, which encompasses employment, and there are still millions of Americans out of work. Furthermore, it's important to note that Kaplan isn't even a voting member on the Fed's monetary policy committee.
Looking ahead to the coming week, there's a Bank of England (BoE) monetary policy meeting on Thursday (May 6, 2021). Additionally, there are key economic releases, including Eurozone retail sales, US ISM data, US factory orders, US employment data (non-farm payrolls, unemployment rate, participation rate, and average earnings), Chinese PMI figures, and Chinese import/export data.