Weekly house view | More confidence needed

The Fed's dousing of hopes for a March rate cut, renewed fears around some regional banks in the US and underwhelming tech earnings meant that stocks struggled in the middle of last week. But indexes recovered after other prominent 'Big Tech' names reported later on, leaving the S&P 500 up 1.4%ⁱ on the week (in USD), even though strong employment numbers for January seemed to bury the idea of early rate relief. The Stoxx Europe 600 was more subdued, rising 0.9%ⁱⁱⁱ (in euros), while the sell-off of Chinese stocks continued, with the MSCI China down 3.9%ⁱⁱ in USD last week (in part due to a court order to wind down property developer Evergrande).

While US Treasuries sold off after the unexpectedly strong January jobs report that also showed a rise in wage growth, investors seemed unfazed by the Fed's push-back on the idea of a March rate cut and welcomed a Treasury department issuance schedule that was lighter than expected. Helped by further tremors in the US regional banking system, Treasury yields fell over the week as a whole, with the 10-year US Treasury yields ending at 4.03%. Big falls in inflation in France and Germany fed a rally in European bonds as investors looked to an ECB rate cut as early as April. The Fed's push-back on rate cuts helped the US dollar, while we saw a big decline in oil prices.

Accelerating jobs growth will make the Fed's decision on when to cut rates harder and we will watch US data closely to assess how much the economy is slowing. In our view, continued disinflation and a weakening labour market would lead to a first cut in June. May is a risk, March unlikely.

Losses at a big US bank highlight the risk of accidents in the market, of which more can be expected, and underline the importance of stock picking this year. The liquidation of a Chinese property developer hit China's markets and we will watch to see if a fall in prices can abate.

US equities have been led higher by the "Magnificent 7" tech stocks whose earnings per share have outpaced other sectors. Market momentum driven by Q4 earnings can continue but there is little room for disappointment. On bonds, the oversubscription of a Greek issue by more than 10 times underlines our 2024 theme "from cash to duration".