Market Commentary 22nd April 2024 – from Will Binks

A data release by the Office for National Statistics (ONS) showed that unemployment rose to 4.2% from December to February, up from 3.9% in the previous three month period. Tuesday also saw the ONS release data for wage growth which came in stronger than expected, sending mixed signals to the Bank of England about future inflationary pressures for the UK economy.

Last week also saw the release of inflation data for March, which showed that the headline consumer price index (CPI) rose by 3.2%, down from 3.4% the previous month. Economists had predicted that inflation would be 3.1%. The annual core inflation rate, which excludes items such as food and energy, dropped to 4.2%, the lowest rate since December 2021.

Official data showed a slowdown in Eurozone inflation, with headline CPI at 2.4% in March from 2.6% in February. European inflation is now sitting marginally above the European Central Bank’s (ECB) target of 2%. Christine Lagarde, president of the ECB, said in an interview last week that provided there are no major economic shocks, they are “heading towards a moment where we have to moderate the restrictive monetary policy”.

The ZEW, a major economic research institute in Germany, released data on the Economic Sentiment for Germany survey which involves interviewing up to 300 experts from banks, insurance companies and financial departments. According to the ZEW, Economic Sentiment rose by 35% in March from the previous month.

The tech-heavy NASDAQ 100 had a difficult week as investors expect slower earnings growth for some of the Big Tech names. Last week saw Microsoft (-5.40%), NVIDIA (-13.59%) and Amazon (-6.18%) to name a few saw their share price decline, with markets eagerly awaiting earnings release this week.

US Retail sales rose 0.7% month-on-month in March, much higher than economists’ forecasts of 0.35%. The US saw its biggest sales increases in non-store retailing, which includes online retailing, sales kiosks and portable stalls.

Official data released last week showed that China’s economy grew by 5.3% year-on-year in Q1 of 2024, which is the steepest annual expansion since Q2 of 2023. Despite the strong growth, under the bonnet things don’t look quite as rosy, with most of this growth coming in January relating to the Lunar New Year festivals and support from Beijing. This suggests that without further support, China could see their economy struggle to hit their economic growth targets.

Japan saw its inflationary pressures continue to subside in March, with headline CPI slowing to 2.7% from February’s 3-month peak of 2.8% and in line with economists’ predictions. The Bank of Japan’s (BoJ), Kazuo Ueda has signalled that future rate hikes will be gradual, but Japan’s Yen has weakened to a 34-year-low against the Dollar, so the BoJ may be forced to tighten their monetary policy further if increased import costs contribute to rising inflationary pressures.

UK bond yields rose last week as investors eagerly await the release of economic data around the globe to assess the path of global monetary policy.

Investors eagerly await the Federal Reserve monetary policy meeting next week, with the relative perceived strength of the US economy diminishing expectations for an immediate interest rate cut.  Meanwhile, reduced tensions between Iran and Israel have reduced demand for safe haven assets.

GBP / EUR – Current 1.1609 Previous 1.1699

The Pound fell by 0.66% against the US Dollar last week, with investors expecting the Bank of England to cut interest rates sooner than the Federal Reserve, weakening the Pound. Against the Euro, the Pound fell by 0.77%.