Market Commentary 8th April 2024 – from Charlie Hancock

Mortgage lender Nationwide reported that house prices unexpectedly declined in March, with the average UK house price falling by 0.2% versus the previous month. The resulting headlines regarding declining property prices came as the Bank of England (BoE) published data on the mortgage market, which showed that mortgage approvals in February rose to the highest level since September 2022. The data suggests that recent declines in mortgage interest rates have contributed to an improvement in housing market activity.

A Purchasing Managers’ Index (PMI) for the UK construction sector showed that construction firms experienced improving activity during March. The level of growth was relatively weak, but marked the first month where the sector has experienced an expansion since August 2023.

Investors paid close attention to Eurozone inflation data, which showed that consumer prices rose by 2.4% year-on-year in March. This pointed to a further easing in inflationary pressures, with the previous month’s Consumer Price Index (CPI) data showing inflation of 2.6%. The data came as minutes from the European Central Bank (ECB)’s March policy meeting indicated that the bank’s policymakers are confident inflation will return to their 2% target, with the argument for interest rate cuts strengthening as a result.

Following a weaker than expected inflation print for February, the Swedish central bank kept interest rates on hold at their policy meeting last week, however, the Riksbank indicated that rate cuts may commence from next month if inflation in Sweden continues to slow.

A PMI for the manufacturing sector in the US indicated that activity expanded in March for the first time since September 2022. The data appeared to have a negative impact on equity markets, which may have been due to firms reporting higher than expected input cost inflation. A PMI for the services sector pointed to growth slowing for the second month in a row.

A jobs reported released on Friday showed that the US economy added 303,000 entrants to payrolls during March, which was significantly higher than expected. Some economists noted that the headline number is likely to be inflated by rising part time employment, with the number of full time employees declining.

Economic data in China pointed to an improvement in March. A Manufacturing PMI indicated the sector grew, marking the first period of expansion in 6 months. A Services PMI pointed to stronger than expected growth. The real estate sector continued to experience issues, with the value of new homes sold during March declining by 49% in comparison to March 2023. China’s central bank indicated that further monetary support will be implemented in the coming months to try and spur economic growth.

The Bank of Japan (BoJ)’s governor, Kazuo Ueda, commented on recent weakness in the Japanese yen, with the central bank concerned that continued currency weakness could hurt the Japanese economy. Ueda appeared to suggest that the central bank could hike interest rates again to try and strengthen the yen.

Data pointing to improving UK economic growth during March appeared to contribute to the rise in Gilt yields.

Eurozone government bond yields rose despite soft inflation data and dovish comments in the ECB’s latest policy meeting minutes, with yields appearing to move in response to increases in government bond yields elsewhere around the globe.

The week’s PMI data and labour market statistics contributed to the move in Treasury yields. Friday’s payroll report came in hotter than expected, which prompted investors to price in fewer interest rate cuts from the Federal Reserve this year.

GBP / EUR – Current 1.1661 Previous 1.1697

The Pound was relatively stable against most major currencies last week. Sterling gained 0.12% against the US Dollar and declined by 0.31% against the Euro.