Global Markets Weekly Wrap KW 18 : Market Update: Fed's Powell Dampens Rate Hike Prospects; Earnings Drive Optimism
Market Dynamics The recent Federal Reserve meeting shed light on the current stance regarding interest rates, despite acknowledging a lack of significant progress in inflation. Fed Chair Jerome Powell dismissed the likelihood of imminent rate hikes, emphasizing a high threshold for such actions this year. This dovish tone, along with indications of a cooling US job market, altered rate expectations from a potential increase to a projection of two cuts this year. Consequently, the yield on two-year US Treasury bonds declined by 17 basis points to 4.8% over the week.
Earnings Spotlight The earnings season continued with 20% of the S&P 500 companies reporting their first-quarter results. Despite some positive outcomes, including better-than-expected revenues and earnings from a major smartphone manufacturer, investors closely monitored signs of weaker consumer spending, investments in artificial intelligence, and future projections, contributing to a 0.5% increase in the S&P index for the week.
Macro Insights Speculation arose regarding intervention from the Bank of Japan following a significant drop in the yen, with the currency rebounding later in the week. Reports suggested substantial spending by Japan's Ministry of Finance to support the yen, although experts remain skeptical about its long-term impact on currency rates. Meanwhile, US manufacturing activity showed signs of slowdown as hiring decreased, as evidenced by the Institute for Supply Management's manufacturing index falling below the contraction threshold. Additionally, non-farm payrolls growth in April fell short of expectations, with lower-than-anticipated wage gains and an uptick in the unemployment rate.
Company Highlights Positive financial reports from a leading smartphone manufacturer lifted investor sentiment despite previous concerns about demand and Chinese market conditions. Furthermore, Chinese equities experienced continued growth, fueled by hedge fund investments and optimism regarding government support policies.
Upcoming Events Next week's economic calendar includes key events such as MBA Mortgage Applications, U. of Mich. Expectations, and Initial Jobless Claims in the US, along with significant releases globally, including UK GDP, Eurozone Economic Forecasts, and China Trade Balance.
Weekly Market Summary US markets concluded on a positive note, with small-cap stocks driving gains and a notable rebound in sentiment following Apple's strong earnings report. Concerns about inflation eased slightly after a slowdown in wage growth and indications of cooling economic activity. Federal Reserve Chair Powell's reassurance regarding current monetary policy further supported market optimism. In Europe, mixed corporate earnings and uncertainty over future interest rates influenced market sentiment, with notable developments in the Eurozone economy and the UK housing market. Japanese stocks saw positive returns amid speculation of government intervention to stabilize the yen, while Chinese markets rallied on expectations of supportive policies. Other key markets, such as Poland and Colombia, experienced fluctuations driven by inflation and monetary policy decisions.