Week ending 3rd May 2024.

Well, the market may have priced in rate cuts by the Fed this year, but on Wednesday we found out that they will not start in May. Fed Chair, Jerome Powell, revealed last week that interest rates for the region would remain at 5.25-5.5% for the time being. Fluctuations in the figure – although minimal – that have continuously moved the Fed closer and then further from their 2% target in the last few months led policymakers to declare that they need greater confidence in the downward trajectory of price growth to think about loosening monetary policy.

Causing markets to rally, Powell stated in a press conference following the announcement that the Fed’s next move is unlikely to be a hike, noting that policymakers will continue to monitor key data such as that related to the labour market to decide when to step in and lower rates. He also nodded to speculation surrounding whether the Fed’s decision will be at all shaped by the upcoming US election, maintaining that they will ignore any ‘noise’ the election creates and focus instead on the ‘economics’ to make sure they get things right.

But if a weakening in the labour market is one aspect of the economy looking at in order to decide when to step in, they will likely have food for thought following the latest jobs data coming out of the US. Last week, reports showed that 175,000 jobs were added in April, coming in below forecasts. The unemployment rate also ticked up from 3.8% to 3.9%.

On Thursday, the unemployment rate for the Eurozone was revealed as remaining unchanged in March at 6.5%, holding steady for the fifth consecutive month in a row. Amongst members, the highest recording of unemployment was in Spain (at 11.7%) while the lowest recorded was in Germany and Malta (at 3.2%). The figure comes in shortly after the ECB’s interest rate decision in April where they decided to leave rates unchanged until they see more evidence that inflation is reducing to their 2% target.

China’s PMI services data as measured by the Caixin survey came in at 52.5 in April, down from 52.7 in March. This was largely in line with expectations. In relation to PMI, anything above 50 indicates an expansion, while anything below illustrates a contraction. The figure for China therefore illustrated that for the 16th consecutive month, the region’s services sector has enjoyed growth. New business continues to soar, hitting highs only seen in May last year, and overseas demand and tourism also enjoyed an uptick.

Still to come this week we have the Bank of England’s interest rate decision and GDP figure, Eurozone retail sales, and China’s CPI data.

Nicola Tune, Portfolio Specialist

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