Week ending 29th March 2024.

Markets mostly concluded the week on a positive note, with major indexes posting gains despite the shortened trading week due to Good Friday closures.

Despite the confirmation of a mild recession in Q4 of 2023, marked by a 0.3% contraction in GDP, the FTSE 100 concluded March and the quarter on a positive note. Closing the quarter up near 3% with a total return of 4.14%, the FTSE 100 benefited from improving earnings and less hawkish monetary policy positions the index favourably for the remainder of the year.

In the US, reports confirmed a 3.4% year-over-year increase in real GDP for the fourth quarter of 2023, surpassing earlier estimates of 3.2%. This unexpected uptick provided additional confidence to investors.

On Friday, data revealed the Federal Reserve’s preferred measure of inflation, the Core PCE index, which excludes food and energy, increased by 2.8% year-over-year in February and by 0.3% from the previous month. While these results met expectations, with markets closed we will have to wait until next week to observe investors’ reaction.

The Fed considers the Core index a better gauge of long-term inflation pressures. Fed Chair Jerome Powell reiterated that the Federal Reserve is not rushing to cut interest rates, emphasising the need for more evidence of contained inflation. Powell noted that recent inflation data is “along the line of what we would like to see” and emphasised the strength of the US economy and labour market, stating, “gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates”.

While policymakers anticipate three rate cuts this year, financial markets have priced in a June rate cut. However, we remain attentive to the Fed’s commentary and data-dependent approach to monetary policy, taking advantage of surrounding market noise. The S&P 500 Index had a strong first quarter of 2024, rallying over 10%, marking its best first-quarter performance in five years.

In Europe, despite economic challenges, consumer confidence in February showed improvement reaching its highest level in over two years, driven by slightly less pessimistic expectations about the economic situation. After European Central Bank President Christine Lagarde’s recent commentary to temper market rate cut expectations, investors will now be looking to Eurozone inflation data due out next week for further signs of cooling prices.

Looking ahead, UK and European markets will remain closed until Tuesday for the Easter bank holiday, while US markets will reopen on Monday. Data-wise, we can expect manufacturing and service PMI data from China, the US, and Europe, as well as March inflation data for Europe, US unemployment, and non-farm payroll data.

Kate Mimnagh, Portfolio Economist