Market Commentary 7th May 2024 – from Charlie Hancock

The Organisation for Economic Cooperation and Development (OECD) said that the UK will be the worst-performing economy of the G7 group in 2025. The growth forecast for 2024 was also revised down to 0.4% from 0.7%, with the OECD stating that high interest rates and the lingering effects of high inflation will weigh on economic growth.

Fresh data on the property market painted a mixed picture. Mortgage lender Nationwide reported that the average UK house price fell by 0.4% during April, extending the fall of 0.2% seen in March, suggesting that housing market sentiment remains relatively weak. Meanwhile, the Bank of England (BoE) reported that the number of mortgage approvals increased during March, reaching an 18-month high. The number of mortgage approvals is now close to the average seen during the pre-covid period of 2016 to 2019.

The Eurozone’s Gross Domestic Product (GDP) expanded by more than expected in the first quarter of 2024, with the economy growing by 0.3%. Economic growth for the 4^th quarter of 2023 was revised to -0.1% following a previous estimate of 0% growth, which means that the bloc fell into a technical recession during the 2^nd half of last year.

A senior official at the European Central Bank (ECB) and governor of the Bank of France, Francois Villeroy de Galhau, stated that recent economic data has strengthened confidence in inflation returning to the ECB’s target by 2025. His comments appeared to support expectations that the central bank will begin cutting interest rates in June.

Investors paid close attention to Friday’s jobs report, which showed that the US economy added 175,000 jobs during April. This was significantly less than expected, whilst wage growth also slowed by more than anticipated to a year-on-year increase of 3.9%.

Meanwhile, a Purchasing Managers’ Index (PMI) reading for the services sector suggested that activity contracted in April, with the index recording the lowest reading since December 2022. The data appeared to contribute to expectations that the Federal Reserve will cut interest rates in the coming months.

The government in China outlined plans to deal with nation’s property market crisis, with reports suggesting that further interest rate cuts are on the table. Authorities are reportedly concerned about the impact of property market weakness on economic growth. Meanwhile, US-China relations appeared to remain fraught after the US government announced they have set up a group to advise countries which are being targeted by Chinese policy. The US accused Beijing of ‘economic coercion’.

Movements in the Japanese Yen continued to make headlines in the financial press and there was growing speculation that authorities in Japan had launched intervention measures to try and stem currency weakness. Earnings reports released by Japanese companies last week suggested that Yen weakness has generally been a positive factor for profits.

The Federal Reserve’s open market committee voted to keep interest rates on hold. The Fed’s chair, Jerome Powell, attempted to push back against concerns that the US economy is experiencing ‘stagflation’, given recent data has pointed to softer than expected growth and higher than expected inflation. Powell stated that he sees both growth and inflation being around 3% at present and stressed that they believe interest rates are “sufficiently restrictive”.

GBP / EUR – Current 1.1658 Previous 1.1682

The Pound clawed back some ground against the US Dollar last week, rising by 0.44%. Against the Euro, the Pound fell by 0.21%.