Week ending 5th April 2024.

As you can see from the accompanying table markets moved lower in a lackluster trading week shortened by market closures in observance of national holidays.

With the Federal Reserve maintaining a data dependent stance, all eyes were on US non-farm payrolls data on Friday. Given the strength of other key economic indicators in recent weeks, investors grew wary on Thursday, mindful that any unexpected data readings could potentially delay anticipated rate cuts which many had pinned their hopes on for June.

Data revealed the unemployment rate dipped to 3.8% in March 2024, a slight improvement from the previous month’s two-year high of 3.9%. Markets were reassured by moderating wage growth and average hourly wages rose by 0.3% in March in line with forecasts. However, more significantly, the US economy added a robust 303,000 jobs in March, well above expectations of 200,000, marking the highest monthly gain in ten months. Following the release of the jobs report, Treasury yields climbed, and investors pared bets on rate cuts later this year. However, the stock market appeared to view the robust jobs report positively closing the day higher, with investor focus remaining on the health of the economy, consumer spending and corporate profits.

As we continue to reiterate the Federal Reserve is data dependent and policymakers have said that they are in no rush to cut rates amidst a backdrop of a tight labour market and resilient economic growth. Investors will now be looking to next week for the release of the US CPI report for March and the Federal Reserve’s March meeting minutes. Against the backdrop of this week’s robust labour market data, which tempered expectations of interest rate cuts, focus has intensified on these minutes and the consumer inflation report.

Investors navigated a week marked by geopolitical tensions, oil prices rose amidst rising tensions between Israel and Iran and major exporters decided to maintain production limits. In the Middle East, U.S. President Joe Biden’s call for an immediate ceasefire in the Gaza conflict during discussions with Israeli Prime Minister Netanyahu added to geopolitical uncertainties.

In Asia, markets shifted to a risk-off mode, exacerbated by a national holiday in China, which led to thinner trading conditions. Meanwhile, in Japan, stocks moved lower as the Bank of Japan hinted that another interest rate hike may be on the horizon, given further weakening of the Yen which has hovered around the highs of 151JPY against the USD. Last month, the central bank raised short-term interest rates, moving them out of negative territory for the first time in more than seven years. Whilst Japan’s monetary policy continues to be one of the most accommodative globally, financial conditions are anticipated to remain supportive in the foreseeable future.

In Europe, economic data added to market concerns. The Eurozone Construction Purchasing Managers’ Index unexpectedly dropped to 42.4 in March, down from 42.9 in February, reflecting a decline in construction activity. Additionally, Eurozone retail sales fell by 0.5% in February, following a revised down figure of 0.1% in January. This disappointing performance underscored challenges facing the region’s economy, raising questions about the pace of recovery.

Data wise next week US and Chinese CPI, ECB will meet on the 11th April to decide on interest rates. In addition to US PPI and UK GDP, first quarter earnings season will also commence next week.

Kate Mimnagh, Portfolio Economist