Weekly house view | Points to ponder for the Fed

The week in review

In a shortened week, US equity markets continued to grind forward, with the S&P 500 managing a return of over 10% (in USD)ⁱ in Q1 as a whole thanks to excitement around AI, the prospect of rate cuts, a resilient US economy and improving earnings forecasts. Signs that market gains were broadening out beyond ‘Big Tech’ were on display last week, with the small-cap Russell 2000ⁱⁱ rising far more than the S&P500, while the Nasdaqⁱⁱⁱ dropped back slightly. Chinese and other Asian (ex. Japan) markets struggled last week, as they did throughout Q1. Government bond markets were quiet last week, but yields were still up over Q1 as a whole. As testimony to the ‘risk-on’ mood, noninvestment-grade credits outperformed their investment-grade rivals in Q1. Despite the rise in US yields and high real rates, gold prices rose in Q1 and last week as did oil prices.

Quote of the week

“The exact date of [the ECB’s] first cut – April or the start of June – is of no existential importance… I firmly believe it should come in the spring, and independently of the US Federal Reserve calendar.”

François Villeroy de Galhau, Governor of the Banque de France

Key data

The headline personal consumption expenditures (PCE) index in the US rose to 2.5% annually in February while core PCE came in at 2.8%. Consumer spending surged 0.8% in February (up from 0.2% in January), while US GDP growth was revised up to an annualised 3.4% in Q4 from 3.2%.

Germany’s GfK consumer confidence index climbed for the second consecutive month in March, but Germain retail sales fell more than expected in February (-1.9% from January and -2.7% from a year earlier), while five leading economic research institutes lowered their 2024 GDP forecast for Germany to 0.1% from an earlier projection of 1.3%.

The core consumer price index in the Tokyo region rose an annual 2.4% in March, down from 2.5% in February. The official purchasing managers indexes for Chinese manufacturing and nonmanufacturing rose in March, to 50.3 and 53, respectively.