Market Update

Global equity markets navigated a volatile week, oscillating between the hope that interest rates might be nearing their zenith and looming concerns about a potential recession.
On Wednesday (3 May 2023), the Fed's announcement met our anticipations: a 0.25% uptick in US interest rates, with a shift towards a data-responsive approach for future decisions.
In principle, this move doesn't entirely shut the door on additional rate hikes if deemed necessary. However, the Fed's statement hints at the possible culmination of the current interest rate trajectory. This aligns with our longstanding perspective that the repercussions of rate hikes over the previous year are still trickling into the economy, influencing inflation and overall financial conditions.
Yet, in a surprising deviation from our expectations, the subsequent press briefing with Fed Chair, Jay Powell, struck a different tone. He expressed reluctance towards potential rate cuts before year-end, emphasizing a desire to sustain high rates as long as inflation overshoots the Fed's 2% benchmark.
Our position remains one of skepticism. Given the evident softening of economic indicators and the vulnerabilities within the US banking system, it's hard to fathom a sustainable high interest rate environment. As we've highlighted before, the precarious state of banks might push them towards more stringent lending measures to bolster their liquidity, which could inevitably decelerate the global economic pulse.
In other regions, April saw a dip in the Eurozone's core CPI inflation, dropping from 5.7% in March to 5.6% — the first decline observed in almost a year.
Nevertheless, this didn't deter the ECB from opting for another 0.25% hike in the Eurozone's interest rates on Thursday (4 May 2023). Yet, this move might further fuel arguments advocating for the ECB to decelerate or even halt its ongoing rate hike campaign.