Global markets were in risk-on mode last week as several major central banks concluded their scheduled policy meetings with upbeat reports about inflation and the schedule for the first rate cuts in the coming months.
What happened last week.
(A forex, index, and commodity market review)
Weekly change (amount change and percentage change on the week)
FTSE +161 +2.07%
DAX +241 +1.33%
DOW +706 +1.82%
S&P +109 +2.12%
NASDQ +510 +2.86%
NIKKEI +1,829 +4.68%
Hang Seng -225 -1.34%
US, European and Japanese equities put in a robust performance last week as the Federal Reserve and the Bank of England confirmed that rates would be cut in the coming months.
There was also one surprise as well when the Swiss National Bank cuts rates by 0.25% to 1.50%, the first cut for several years following five increases in rates between June 2022 and June 2023.
US , Japanese and European equities were propelled further into record territory as investors were encouraged by the prospects for rates cuts in the coming months as central banker reaffirmed market expectations.
The FTSE100 had its best week since September last year as the index climbed to within 85 points of its all time high of 8033 set on 15th February 2023.The UK markets had a double dose of good news as headline inflation fell to 3.4%, better than expected, prompting the Bank of England’s Governor to say that the MPC was confident that the rate was heading to towards its target. Andrew Bailey confirmed that rate cuts were “in play” – effectively saying that interest rates were likely to be cut at meetings later this summer. The bank predicts that inflation is set to fall to its 2% target in Q2. The forward interest rate swaps now infer a 60% probability of a cut in rates by 0.25% in June, with a further two 0.25% cuts by year end.
Future interest rate cuts in the UK depend on how the inflation numbers develop and there remains some uncertainty. The service sector price inflation, which remains a worry for markets and the Bank of England, fell to 6.1% from 6.5% as expected but is still higher than the bank would like as it a measure of home-grown price pressure due to the relative size of the sector.
The Federal Reserve also played its part last week as the FOMC decided to leave interest rates unchanged as expected, as rates remain at 5.25% - 5.5% band where they have been since June last year. However, the rate setting committee did confirm that they expected to cut rates by three 0.25% cuts by year end, despite forecasting higher growth of 2.1% and slightly hotter core inflation of 2.1% this year. Markets reacted very positively to the Fed’s statement as expectations of a rate cut in June jumped to 75% compared with 55% a week ago. On the day of the Fed announcement last Wednesday, equities jumped sharply, reflecting the improving economic outlook and interest rate outlook. By the close Friday, the broad S&P500 was up another 2.1% in record territory as was the tech focused NASDAQ, up a blistering 2.8% on the week.
EURUSD -0.81 -0.74%
GBPUSD -1.36 -1.07%
USDJPY +2.41 +1.62%
The US Dollar continued to recover versus the majors last week as growth in the US is forecast to outstrip the forecasts of more modest growth forecast in Europe. News that that the Swiss National bank cut rates and that the bank of England was warming to the task, helped push the US Dollar to its highest level since the beginning of March.
Despite the ending of the ultra loose monetary policy in Japan last week, the Japanese Yen jumped sharply higher, reflecting the expected slow pace in any further increases as the decision to change policy was compromised by dissenting votes against ending the previous negative overnight rate, which had been -0.1% since January 2016.The Yen fell 2.4% last week.
Gold +8 +0.37%
UK OIL +0.17 +0.20%
US OIL +0.19 +0.24%
Gold did not fell as much as might have been expected with the continued strength in the US Dollar versus all majors. The fall of $8 last week is very modest compared to the near $150 rally over the last month.
Oil remained firm last week following gains from the previous week. The shift in demand forecast helped push crude higher whilst the middle east conflict between Hamas and Isarel continues to expose further rifts between Israel and the US, with the prospects for any peace agreement a long way off.
Data and events in the coming week
(What traders need to look out for in the week ahead)
Following the deluge of policy decisions from five major central banks, this week has a dearth of releases in this holiday shorted Easter week.
Monday
US New Home Sales.
A quiet week for data so worth looking at this data. New home sales are an indicator of consumer confidence and interest rate expectations. Data has improved from the low print in December last year and is expected to improve, reflecting the better growth prospects this year in the US.
Tuesday
Germany GfK consumer confidence survey.
-27.7 versus -29 last month. Expectations continue to improve in Germany, as the powerhouse in the Eurozone, the German economy has been hit hard by the energy crisis and slow down in important Chinese markets and needs to improve if the Eurozone economy is to prosper.
US Core Durable goods. Excludes transportation sectors. +0.4% expected. USD sensitive to any significant miss.
US Conference Board Consumer Confidence. A steady improvement in consumer confidence over the past few months. 106.9 versus 106.7 last month. USD and US assets slightly sensitive to this release.
Wednesday
Eurozone Spanish Flash CPI reading.
Stickier going.
US FOMC member, Chris Waller, speaking at the Economic Club of New York. Audience questions expected. In a quiet week was data release this could create some interest if there is any reference to future rate cuts. USD sensitive.
Thursday
UK Final GDP readings for Q4. Historical with no impact expected.
US Final GDP reading for Q4. No revision expected, no impact expected.
US Revised University of Michigan Consumer Sentiment. Unchanged reading from prelim number of 76.5. Insights into consumer confidence helps inform prospects for future retail spending and general growth in the economy. USD sensitive.
Friday
UK, US, Eurozone Good Friday.
All major international markets closed. Europe also closed Monday 1st April
US PCE Inflation data. Expected at +0.3% month on month. Despite the US markets being closed, this data is important for Fed watchers as it is the preferred measure of inflation used by the Federal Reserve. Trades and investors will however have to wait until Monday before articulating their views on this important data release. USD and US assets will be sensitive to this release but will not react until they reopen Monday afternoon.
Sunday
EU&UK
EU and UK clocks go forward 1 hour restoring the 5-hour difference with the US.
