Macro Matters – Weekly review, w/c March 25

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• Global stocks surge on dovish central banks

• Fed signals three rate cuts for 2024

• SNB surprises with a rate cut

• UK CPI cools, BoE points to rate easing

• BoJ hikes from negative rates (as expected)

Global Stocks Surge on Dovish Central Banks

Central banks took center stage this week, significantly influencing global financial markets. The Swiss National Bank (SNB) surprised with a 0.25% rate cut, while the Bank of Japan (BoJ) made headlines by raising interest rates for the first time in 17 years, ending its negative rate policy. The Federal Reserve and Bank of England maintained steady rates while signaling future cuts, with the Fed reaffirming guidance for three reductions in 2024.

These dovish signals drove global stocks higher, with the S&P 500 and Dow Jones reaching record highs. European markets also saw significant gains, with the Stoxx 600, FTSE 100, DAX, and CAC 40 advancing. The upbeat sentiment extended to Asia, where Japan’s Nikkei 225 gained momentum.

Fed Signals Three Rate Cuts for 2024

The Federal Reserve held rates steady at 5.25%-5.5% and signaled plans for three quarter-point rate cuts in 2024. Fed Chair Jerome Powell emphasized that reductions hinge on favorable economic conditions, aligning with a cautiously optimistic outlook. Markets reacted positively, with equities rallying and Treasury yields dropping.

SNB Surprises with a Rate Cut

The Swiss National Bank cut its main rate to 1.50%, diverging from expectations of steady rates. This decision followed a decline in Swiss inflation to 1.2%, firmly within the SNB’s target range. The move weakened the Swiss franc and boosted local equities, with Chairman Thomas Jordan citing reduced inflationary pressures as a primary driver.

UK CPI Cools, BoE Points to Rate Easing

UK inflation slowed significantly, with CPI rising 3.4% in February, down from 4% in January. Core inflation and services sector inflation also eased, prompting the Bank of England (BoE) to signal potential rate cuts. Governor Andrew Bailey highlighted the need for caution but hinted at the likelihood of three cuts by year-end, potentially lowering rates to 4.5%.

BoJ Hikes from Negative Rates (as Expected)

The Bank of Japan ended its negative interest rate policy, marking a historic shift in monetary policy. The BoJ set a new range of 0%-0.1% and emphasized a continued accommodative stance to support inflation targets. Governor Kazuo Ueda noted the potential for further hikes depending on economic conditions, though a weaker yen boosted Japanese equities.

What’s Ahead

Central Bank Watch:

• BoJ Monetary Policy Meeting Minutes (Monday)

• Insights from FOMC speakers following the Fed’s dovish stance

Macro Data Watch:

• 03/25/2024: BoJ Monetary Policy Meeting Minutes

• 03/26/2024: US Consumer Confidence, Durable Goods

• 03/27/2024: Australia CPI, EU Consumer Confidence

• 03/28/2024: US, UK, and Canada GDP; German Retail Sales and Unemployment

• 03/29/2024: Japan Tokyo CPI, US PCE

Other:

Friday, March 30, is Good Friday. US and European cash and futures markets will be closed. The US PCE release, a key inflation measure, is the standout data for the week.

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