Results for: Federal Reserve

Global equities performed well in the first quarter of 2024, as discussed at the beginning of the year, with economic distortions from the pandemic normalizing. Consumption continued to drive growth, with unemployment remaining low and purchasing managers indices indicating expansion in both services and manufacturing. Despite concerns about inflation, it is expected to moderate and remain above the historically low levels experienced during the last decade. The US Federal Reserve and other major central banks are anticipated to cut interest rates, with the Fed likely to lower nominal policy rates as early as the second quarter. While the United States has achieved a soft landing with strong corporate earnings, Europe is showing economic resilience with easing inflationary pressures and improving manufacturing PMIs. Japan has emerged as one of the stronger markets due to positive inflation and structural tailwinds, including wage increases and changes to corporate governance code. China’s near-term outlook remains challenged, but valuations are attractive relative to long-term averages and emerging markets. Overall, a broader distribution of growth is expected as the post-pandemic global economy normalizes.

The upcoming release of first-quarter real GDP growth estimates is highly anticipated by policymakers, economists, and investors. This crucial economic indicator, measured by the U.S. Bureau of Economic Analysis, provides insights into economic activity and guides financial projections. The Fed Board staff’s projections, renowned for their accuracy, heavily rely on GDP estimates for reliable advance estimates. Expectations indicate a potential GDP growth of less than 3% in Q1, driven by strong productivity growth. The March Personal Consumption Expenditure (PCE) deflator, a key inflation measure, will be revealed in the GDP report. While inflation has seen a notable rise, it remains uncertain whether it represents a sustained uptick or temporary factors. The data is expected to be released on Thursday, April 25, and will likely impact market movements. As witnessed with other labor and inflation readings, a positive GDP report could serve as a negative catalyst. As of April 16, GDPNow estimates Q1 2024 real GDP growth at 2.9%, indicating a positive outlook. Factors such as rising productivity, increased consumption expenditures, and stable residential construction contribute to optimistic forecasts. However, concerns linger about inflation, particularly the increase in PCE and CPI, prompting the delay of rate-cut expectations from May to June. Despite these concerns, the U.S. economy remains driven by its robust labor market, projecting a rise of about 2.5% this year. However, caution is advised as the growth is expected to slow to 1.8% by the end of 2024.

In a recent period, interest rates rose after the CPI report indicated higher inflation persistence, shaking financial markets. The U.S. domestic market extended its gains during the same period, largely influenced by the Federal Reserve’s decisions. The Fed maintained the upper bound of its target Federal Funds rate at 5.50%, suggesting a dovish policy stance emphasizing economic stability. Interest rates remained steady until the release of the March CPI report, which showed higher inflation than expected. This led to a spike in two-year Treasury yields and weakness across financial markets. The BUZZ NextGen AI US Sentiment Leaders Index (BUZZ Index) returned 5.39% in March, outperforming the S&P 500 Index. Coinbase Global Inc. led gains within the BUZZ Index, while some technology-related stocks faced setbacks. Viking Therapeutics and Paramount Global entered the BUZZ Index this month. Overall, the investment market experienced volatility and uncertainty due to inflation persistence and the Fed’s interest rate decisions.

In a recent interview, former Reagan advisor Steve Hankey shared his insights on the current state of the U.S. economy and offered investment recommendations in light of potential challenges. Hankey believes the Federal Reserve’s actions have contributed to inflation and is concerned about the growing role of government in decision-making. He predicts a possible recession later this year and suggests considering gold, Iowa farmland, and 10-year Treasury bonds as investment options.

The U.S. stock market made a strong start to 2024, with the S&P 500 index rising 10.6% in the first quarter. This marked the index’s best first-quarter performance since 2019. The rally was driven by expectations that the Federal Reserve would cut interest rates by March 2024, but those expectations have since been halved to possibly three cuts, with June now being the anticipated start date.

While the market has remained resilient, inflation has remained a concern, leading to a resetting of the benchmark 10-year U.S. Treasury yield from below 4% to 4.2% by the end of the quarter. Bonds enjoyed the decline in rates into the end of 2023, but the resetting of rate cut expectations has taken the broad bond market down -0.8% year-to-date.

Despite the challenges, cyclical stocks, led by the energy sector, surged in March, broadening the U.S. stock market beyond the seven dominant stocks that had led the rally. However, from a size standpoint, large caps remained the preferred choice, with mid and small caps lagging.

The U.S. dollar recovered in early European trading on Wednesday after a decline in the previous session, with traders closely monitoring forthcoming economic data for indications of the Federal Reserve’s upcoming monetary policy decisions.

The dollar’s recent slide was mostly attributed to data indicating a decline in U.S. business growth, with activity falling to a four-month low in April. However, hawkish comments from Federal Reserve officials have suggested that this particular data point is unlikely to result in rate cuts being moved forward to the summer.

Gross domestic product data for the first quarter and personal consumption price expenditures data, the Fed’s preferred inflation measure, are expected to be released on Thursday and Friday, respectively, and may trigger more significant market movements. The first Fed rate cut is generally anticipated to occur in September, with November being the second most likely month and June now considered unlikely.

In Europe, the euro gave up some of its gains from the previous session, while the pound fell after initially benefiting from positive data on UK business growth. The Bank of England is anticipated to lower interest rates by at least half a percentage point this year, while the European Central Bank has indicated a rate cut at its next policy meeting in June.

In Asia, the yen weakened, bringing USD/JPY closer to the 155 level, despite warnings from Japanese authorities about possible government intervention to support the currency. The Bank of Japan’s policy meeting on Friday will be closely watched for any shifts in its outlook on inflation and economic growth.

The contraction in the M2 money supply, which had helped curb inflation, has come to an end. This reversal raises concerns that inflation may remain elevated for longer than anticipated. Although the increase in M2 is not excessive, the positive trend in recent months suggests that the battle against inflation is not yet over. The rise in M2 is timely, providing lubrication for an economy that was starting to show signs of tightening. However, it also highlights the delicate balance between curbing inflation and supporting economic growth.

Bitcoin’s price experienced a modest increase on Wednesday due to a temporary decline in the dollar’s value. However, broader crypto prices were subdued amid persistent concerns over prolonged higher interest rates and waning enthusiasm for exchange-traded funds (ETFs). Despite the rebound in technology stocks this week, Bitcoin remained within a narrow trading range of $60,000 to $70,000, largely unaffected by recent events such as the halving event and the launch of the ‘Runes’ protocol. Data indicates that crypto investment products have witnessed capital outflows for the second consecutive week, suggesting declining interest in ETFs after their initial approval in March. As the Federal Reserve maintains its hawkish stance and inflation concerns persist, cryptocurrencies face headwinds, as their performance typically thrives in low-interest, high-liquidity environments.

Daniel Pinto, President and Chief Operating Officer of JPMorgan, stated at an event in Washington DC that the Federal Open Market Committee (FOMC) will not be cutting rates this year unless inflation falls.

U.S. stocks rallied on Tuesday, boosted by strong earnings from General Motors and anticipation of upcoming results from tech giants like Tesla, Microsoft, and Alphabet. The S&P 500 gained 1.2%, the Dow rose 0.69%, and the Nasdaq jumped 1.59%. Tesla’s mixed earnings report lifted its shares in after-hours trading. Data indicated a slowdown in U.S. business activity and a slight easing of inflation, offering some optimism for moderation in price increases. Investors await the release of the PCE inflation gauge on Friday. Despite weaker economic indicators, the market interpreted them as positive signals, suggesting excessive hawkishness in Fed expectations. Spotify and GE Aerospace impressed with strong performance, while JetBlue’s revised revenue forecast led to a significant decline in its shares.