Market Update

This week was significant in terms of economic data for the US. The region's GDP figure for Q1 was reported to have grown at a rate of 1.6% year-on-year, falling below expectations of a 2.4% increase. Concurrently, core PCE data for the US—considered the Fed's preferred measure of inflation, which tracks the increase in goods and services excluding volatile elements like food and fuel—was reported as having risen by an annualized 3.7% quarter on quarter. Many are now questioning what this means for the Fed's upcoming interest rate decision on May 1st, particularly whether slower growth coupled with a spike in inflation might complicate a potential interest rate cut in 2024.
Interestingly, markets responded to the PCE figure showing that the index held steady year-on-year at a growth rate of 2.8%. The reaction was notable because the reading appeared flat compared to upward revisions in previous months. However, investors quickly bought back in following reports emerging as tech earnings season commenced.
Following these reports, US Treasury Secretary Janet Yellen announced that the economy is performing strongly, suggesting that the Fed will achieve the smooth landing it has been aiming for. Yellen noted the peculiar GDP growth but emphasized that it's not a cause for concern. She pointed out that the job market's expansion for over three years is boosting consumer spending without overheating wage growth and pressuring inflation upwards. Yellen also reassured the public that costs like shelter will moderate throughout the year, meaning inflation is unlikely to spike in a way that would concern the Fed.
Meanwhile in Europe, France is facing pressure as President Macron's administration receives criticism from the Far Right and Republicans over its current public deficit. Recent forecasts from the International Monetary Fund indicate that the country's deficit will remain above 4% until 2029, with Macron's government projecting a shortfall of 5.1% this year. This could lead to a future no-confidence vote against the Prime Minister. Despite agencies Moody's and Fitch leaving the region's credit rating unchanged last week, we anticipate some short-term market volatility in the coming weeks as investors discern tangible economic concerns from noise.
Last week, CPI data was released for Japan, with the core reading showing a slower increase of 1.6% in April from last year, contrasting with a 2.4% gain in March. The slower increase this month is partly attributed to Tokyo Metropolitan Government's decision to provide free tuition for students. Following the end of their 17-year stretch of negative rates last month, policymakers kept rates unchanged at -0.1% to 0.1% on Friday. The Yen initially slid 160 against the dollar before rebounding in anticipation of subsequent interventions by policymakers.
Looking ahead this week, we await the Fed's latest interest rate decision (expected to see policymakers holding rates steady), China's PMI data, Eurozone consumer confidence, GDP, and inflation data, along with earnings reports from Amazon, Apple, HSBC, Samsung, and Q1 earnings from Chinese mega banks.