Weekly Macro Matters
Macro Matters – Weekly review, w/c March 11
US stock indices hit record highs, driven by investor optimism around potential Federal Reserve rate cuts. Meanwhile, mixed economic signals emerged from Fed Chair Powell’s testimony, the European Central Bank’s stance on rate cuts, and the Bank of Japan’s anticipated policy shift.
TradeDay Macro Matters
Macroeconomic / Geopolitical Developments
• Record highs again for US stock averages
• Fed’s Powell sends mixed messages
• ECB on hold, but rate cuts in the spotlight
• Growing anticipation of a Bank of Japan March rate hike
• US Employment report mixed
Record Highs Again for US Stock Averages
The S&P 500 and Nasdaq Composite reached record highs last Thursday, fueled by optimism surrounding potential Federal Reserve rate cuts. Technology and growth stocks led the surge, with the Philadelphia Semiconductor Index reaching an all-time high, bolstered by expectations of AI-driven demand. Investor sentiment was further boosted by Fed Chair Powell’s remarks suggesting progress towards achieving inflation targets, hinting at potential rate cuts later this year.
Fed’s Powell Sends Mixed Messages
Fed Chair Jerome Powell highlighted the need for clear evidence of inflation cooling before cutting rates but hinted at possible reductions in mid-June or late July. Powell emphasized data-driven decisions, leaving investors to navigate mixed signals from his testimony. With inflation, employment, and political pressures in focus, the Fed remains cautious in its policy approach.
ECB on Hold, But Rate Cuts in the Spotlight
The ECB kept rates steady, maintaining the refinancing rate at 4.5%. Projections indicate inflation could meet the 2% target by 2025, prompting market speculation of a 100-basis-point rate cut starting in June. European equity markets rallied, with the Euro Stoxx 50 reaching its highest point since November 2000.
Growing Anticipation of a Bank of Japan March Rate Hike
Speculation mounts over the BoJ potentially ending negative interest rates in its March meeting. Positive wage negotiation results could expedite this policy shift, marking Japan’s first rate hike since 2007. Despite lingering uncertainties, policymakers anticipate wage-driven consumer spending to bolster inflation, moving closer to long-term targets.
US Employment Report Mixed
February’s employment data showed strong job creation with 275,000 nonfarm payroll additions but a rise in unemployment to 3.9%. Downward revisions for December and January tempered optimism. The discrepancy between job creation and rising unemployment highlights complexities in the labor market, keeping the Fed’s focus on economic stability amidst potential rate cuts.
What’s Ahead
Central Bank Watch:
No major announcements expected this week, though Fed speakers remain key to watch.
Macro Data Watch:
• 03/11/2024: Japan GDP (QoQ, YoY)
• 03/12/2024: German CPI, UK Employment Report, US CPI
• 03/13/2024: UK GDP, EU Industrial Production
• 03/14/2024: US PPI, Retail Sales
• 03/15/2024: US Industrial Production, Michigan Consumer Sentiment
Other Events:
The US switched to Daylight Savings Time on March 10, impacting market open and close times for global traders.
This week’s focus will be on inflation data from the US, UK, and Germany, as well as industrial production reports across the UK, EU, and US, shaping market sentiment amid evolving monetary policy expectations.
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