This week’s market update highlights the latest economic news and general market performance across the UK, US and Asia.
The key takeaways:
- Soaring unemployment – New data to the end of February showed the UK’s unemployment rate had jumped to 4.2%, a 6-month high, indicating the labour market might be cooling off. The shock of the jump is somewhat softened by ongoing strong wage increases.
- UK inflation cooling down – March data shows CPI falling to 3.2% year-on-year, its lowest since September 2021. Despite trending downwards, this was hotter than the 3.1% markets expected.
- Powell signals US rate cut delay –A speech by Fed Chair Jerome Powell pointed to a lack of progress on inflation in 2024 when stating the bank can keep rates steady for ‘as long as needed’.
- Chinese recovery roller-coaster – The Q1 GDP numbers were better than expected, hitting 5.3%. But there are doubts about whether this growth can last, especially since most of it happened in January and February – and March showed decreases in industrial output and retail sales.
- Tesla job cuts – Tesla announced a cut of over 10% to its global headcount, citing duplication of roles and a desire to reduce costs as it’s reasoning. At the same time, Musk asked shareholders to re-approve a $56bn pay-award recently struck-down by the courts.
What does that mean for me and my clients?
Despite UK inflation and unemployment rates slowing down, the UK economy seems to be holding up better than expected, surprising market watchers.
As a result, expectations are now for only one or two interest rate cuts in 2024, instead of more. However, unlike the cautious approach of Powell, the US Federal Reserve Chair, the Bank of England's Governor, Bailey is less worried about inflation driven by increased demand in the UK compared to the US. Leading to suggestions the UK may start cutting interest rates before the Fed does.
This week’s news only reinforces what we’ve been saying: it's important for investors to spread their investments across different regions, especially now as central banks around the world are taking different paths.
Chart of the week
The chart shows fund manager expectations for the economy over the next 12 months.
Source: BofA Global Fund Manager Survey, Bloomberg as of April 2024.
Why’s this worth sharing?
Whilst most surveyed managers still predict a ‘soft landing’ – a gentle slowdown in the global economy, as inflation eases, there’s been a notable rise in the belief that there may be no slowdown at all - a ‘no landing’. The situation suggests that economic growth will stay strong, but inflation will remain high, explaining some recent market moves.
In the US, this outcome gained traction as expectations for interest rate cuts decreased and consumer spending kept rising. Expectations of a hard landing and deeper recession fall to the lowest levels seen since this question was introduced into the survey. Good news for stocks, indeed.
The Markets
US Markets were down this week, with the S&P 500 seeing its longest losing streak since January, as investors worry over geopolitical concerns and reign in rate-cut expectations.
European and Asian markets also suffered in a sell-off sparked by the US interest rate news. Before today’s Israeli strikes on Iran, Brent Crude had eased on subdued Middle East tensions and prices had returned to a reflection of fundamentals.
While in bond markets, Gilts followed US treasury yields higher, again based on revised rate cut expectations, while triggering moves by traders looking to ‘buy the dip’.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | -0.59% | 2.01% |
| FTSE 250 | -1.70% | -0.31% |
| S&P 500 | -3.10% | 5.66% |
| NASDAQ | -4.24% | 5.66% |
| Hang Seng | -3.49% | -2.40% |
| Nikkei 225 | -4.13% | 14.39% |
| Brent Crude | -3.86% | 12.89% |
| Gold Spot | 1.50% | 15.54% |
| UK 10yr GILT | +5bps | +65bps |
| US 10yr Treasury | +8bps | +70bps |
Source: FE FundInfo, figures as at close Thursday.
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