The Week Ahead
Markets witnessed a rollercoaster week amid mixed US growth and inflation data. During the week, the yield on the 2-year breached 5%, while the 10-year closed 4bps higher, at 4.67%. Yields were initially driven higher by the upside surprise from the core PCE index, eventually pulling back following the PCE deflator prints. The advanced estimate for US Q1’24 GDP, which missed expectations, slowed to 1.6%qoq. This reading saw US equity markets initially slide; however, tech stocks propelled the S&P Index through the remainder of the week, the index closed 2.67% higher. Brent crude closed 2.53% higher on the week, at $89.50pb. Meanwhile, the DXY Index retreated 0.20%. The big currency story, however, was around the Japanese yen, which fell to a 34-year low against the greenback last week. This morning, the yen breached 160 against the dollar, for the first time since 1990, it has since recovered, amid speculations of BoJ intervention.
US data included the prelim. S&P Global PMIs all of which surprised to the downside. Manufacturing fell into contraction at 49.9 (exp. 52, prev. 51.9), while services came in at 50.9 (exp. 52, prev. 52.1). Later the advanced reading for the US GDP missed expectations for 2.5% expansion in the first quarter, coming in at 1.6%qoq. Although above the longer-run sustainable pace, the growth figure represented the most sluggish rate of expansion in nearly two years. Personal consumption also surprised to the downside in Q1 at 2.5% (exp. 3.0%, prev. 3.3%). Household spending rose 2.5%, from the robust pace of 3.3% and 3.1% in the two previous quarters; a reading above 2% is considered above average. Meanwhile, spending on services rose at the fastest pace since the pandemic recovery, up 4%qoq. Meanwhile, the core PCE Index, which strips out volatile food and energy costs, increased 3.7% in the first quarter, against expectations for a 3.4%qoq rise. Friday’s releases showed steady consumer spending, and a pick-up in real personal spending in March. The March PCE deflator prints were in-line with expectations; both the headline and core rose 0.3%. However, year-on-year the headline was higher, at 2.7% (prev. 2.5%), while the core figure was unchanged at 2.8%.
Elsewhere, President Xi and US Secretary of State Blinken reached a five-point consensus. Following Blinken's visit, Tesla CEO Elon Musk met with Premier Li Qiang in Beijing, potentially paving the way for introducing Tesla's Full Self-Driving technology in China and showcasing China's commitment to foreign investment. China's industrial profit growth decelerated in Q1, with computer, communications, and automotive sectors contributing significantly. China unveiled a trade-in policy to boost new energy vehicle sales, while officials discussed the central bank's potential purchase of government bonds for liquidity management.
The highlights this week include the FOMC meeting (Tue-Wed), no change to rates is expected, however, markets will continue to scrutinise any messaging from the meeting. Closer to home we have the UK local elections. Later in the week we have the US employment print (Friday). Earnings reports from the likes of Apple and Amazon will keep markets on their toes through the week. Of interest today are the CPI prints for Germany and Spain. China Caixin and official PMI prints hit the screens early on Tuesday, and we have a number of key European economies releasing GDP estimates, and the US employment cost index and the Conference Board consumer confidence prints. We will also hear from the BoE’s Mills on “securing financial stability”. On Wednesday, the UK’s PMIs are due, and later we have the US ISM manufacturing release and the FOMC decision. With expectations that the Fed will hold rates, of interest will be Powell’s presser. A host of S&P Global PMIs follow on Thursday, and US factory orders, trade data and initial jobless claims may garner market attention. The US employment figures are expected to be the key event for the week. Current market expectations are for +250k jobs to have been added in April, unemployment to remain at 3.8% and average hourly earnings to rise 0.3%mom, and 4%yoy.
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.