• Weekly Overview of Global Markets

Market Review and Outlook

Weekly performance of major asset classes: Crude Oil> Gold> HK Stocks> US Stocks> US Bonds

Stocks: Last week, we saw a mix of positive and negative trends in the stock market. On the one hand, better-than-expected data and cautious comments from Fed policy makers sparked concerns about inflation, leading to a significant drop in major indexes on Thursday. The Dow Jones Industrial Average saw its largest single-day drop in over a year, while the Chicago Board Options Exchange Volatility Index (VIX) soared to its highest level in over five months. However, on Friday, the market experienced a bit of a rebound, although it wasn't enough to prevent a weekly decline.

When we look at individual sectors, we saw growth stocks outperforming value stocks, and large-cap stocks had a smaller decline compared to small-cap stocks. Energy stocks performed particularly well, likely due to concerns about geopolitical tensions and supply constraints.

As we move into earnings season, the major banks are getting ready to release their quarterly reports. Analysts are predicting an average earnings per share growth of 3.2% for S&P 500 constituent companies in the first quarter, according to FactSet data. If this prediction holds true, it will mark the third consecutive quarter of year-over-year profit growth for these companies.

Bonds: Influenced by factors such as the latest employment data, changes in interest rate prospects, and geopolitical tensions, the yield on 10-year US Treasuries rose to its highest level in over four months. On Friday, the yield closed at around 4.39%, higher than the previous week's 4.20%.

Crude oil: Due to concerns about escalating geopolitical tensions and factors such as major oil-exporting countries maintaining production limits amid supply constraints, oil prices rose steadily for a second consecutive week, reaching their highest level since October. On Friday, WTI crude oil trading prices approached $87 per barrel, higher than last weekend's $83 and the $71 seen at the beginning of 2024.

Gold: Supported by strong inflows of safe-haven funds and prospects for US interest rate cuts this year, gold prices hit a historic high again on Friday, with spot gold prices at around $2,345 per ounce. Gold has now risen for three consecutive weeks.

Note: The weekly performance of major asset classes is ranked based on the weekly change in the asset class as shown in the table above, with ">" indicating the ranking from highest to lowest. US bonds are ranked based on the change in futures prices. Past returns do not guarantee future returns.

Data source: Bloomberg. Date as of April 5th, 2024

• Weekly Hot Topic

Growing economy, declining market: Will June's Rate Cut Expectations Hold?

• Manufacturing expands for the first time in 16 months

Last week, the Institute for Supply Management's (ISM) activity indices had a significant impact on market sentiment.

The March ISM Manufacturing PMI reading released on Monday was 50.3, indicating the first expansion in the economy in 16 months, far exceeding expectations. This caused investors to believe that expectations for a rate cut would be delayed, leading to the 10-year Treasury yield rising 0.12 percentage points to 4.32% and causing US stocks to open in negative territory, fluctuating narrowly throughout the day.

However, the ISM Service Report released on Wednesday helped to alleviate concerns. While the service index still indicates expansion, it has fallen for the second consecutive month. Additionally, the price paid index has fallen to its lowest level since March 2020, increasing hopes for a rate cut by the Fed in June. Overall, the contrasting reports have left investors uncertain about future moves by the Fed.

• Employment grows 50% more than expected

The US Department of Labor's employment report released last Friday exceeded expectations, with 303,000 jobs added in March, the strongest monthly increase in almost 10 months. The healthcare, government, construction, and leisure and hospitality industries saw the most eye-catching recruitment, with the latter officially returning to pre-pandemic employment levels.

The strong employment data has further reduced expectations for a rate cut by the Fed in June. According to the CME FedWatch Tool, the probability of maintaining interest rates unchanged in June has significantly increased from 34.2% on Thursday to 46%. Analysts suggest that if the economy continues to be strong and inflation fails to drop to the Fed's 2% target, the likelihood of three rate cuts by the Fed this year will be reduced. Overall, the employment report has added more uncertainty to the Fed's future decisions.

Interestingly, high interest rates do not appear to have had a negative impact on the US labor market, and stock market investors seem unfazed by this. In fact, the stock market responded positively to the strong employment report in March, with US stocks rising sharply on Friday. The S&P and Nasdaq were both up over 1%.

Analysts suggest that a strong economy and healthy consumer spending are crucial to maintaining a bull market. As long as the economy remains healthy without overheating or recession, investors will remain optimistic about the earnings growth of listed companies. Therefore, it is still reasonable to reduce expectations for a rate cut. Chris Zaccarelli, Chief Investment Officer of Independent, stated that for investors, consumer spending and corporate profits are more important than how many times or how much the Fed cuts interest rates.

Seema Shah, chief global strategist at Principal Asset Management comments that the slowdown in average hourly income is in line with expectations, and Federal Reserve Chairman Jerome Powell has explicitly stated in recent speeches that a strong labor market is not a cause for concern as long as inflation pressures ease. The strong employment data should reassure the market, and if the Fed does not cut interest rates in June, it is because the economy is still strong and corporate profits continue to rise. She said that the CPI data to be released next week will be "key" to interest rate expectations.

• Important Events Outlook for This Week

Consumer Price Index (CPI)

CPI is a measure of inflation that is used to inform the Federal Reserve's interest rate decisions, along with employment conditions and inflation trends. This has been the key to observing market performance over the past two years. Therefore, this Wednesday's CPI report will be a catalyst for the market to adjust and react to expectations for the timing and magnitude of rate cuts this year.

Last month's CPI report showed a year-on-year increase of 3.2% in February, up from 3.1% the previous month. The current market expectation is that the core CPI will drop from 3.8% in February to 3.7%. The CPI report will be closely watched by market participants to gauge the level of inflation and its impact on the Fed's interest rate decisions.