Global Economy & Markets, Weekly Roundup 20/05/24
US equity indices finished at their highest ever levels in the past week
Some risks facing investors have moderated compared with mid-April (e.g. the Fed confirmed its bias regarding interest rate cuts, China’s policy easing), hence risk appetite has improved further and risk assets have rallied. Global equity markets gained further ground in the past week, with major bourses returning to record highs (MSCI ACWI: +1.6% wow & +9% YtD).
Softer-than-expected US CPI inflation, albeit still above Fed’s target, reinstated financial markets’ expectations for a “soft landing” of the economy and two rate cuts by the Federal Reserve in the second half of the year, supporting equities (S&P500: +1.5% wow & +11% YtD) and pushing US Treasury bond 10-year yields lower by -8 bps wow to 4.42%.
In addition, equity markets remain unperturbed despite trade concerns and geopolitical flare ups. We expect trade relations to gradually take center stage in asset allocation decisions ahead of November 2024 US Elections.
The US federal government announced an increase in tariffs on certain goods imports from China. The items include steel, aluminum, semiconductors, batteries, critical minerals, solar cells, ship-to-shore cranes, various medical products and, more profoundly so, electric vehicles, for which the tariff rate will quadruple to 100% effective as soon as in 2024 (mid-August).
The import value of the affected items is estimated at $18 billion or c. 4% of total (annual) goods imports from China and c. 0.6% of total US goods imports. As a result, the decision is not expected to exert a meaningful upward impact on US consumer inflation.
The rationale of the decision is to “level the playing field” for certain products for which, according to the White House, Chinese manufacturers enjoy an unwarranted pricing advantage, stemming from State subsidies covering a big part of production costs. China vowed to “take all necessary measures to defend its rights and interests”, albeit an extended and deepening “tit-for-tat” on tariff rates does not appear the most likely scenario, at least up to November 2024 US Elections).
Recall that the current Administration in the US, had roughly maintained up to the latest decisions the increased tariffs imposed during the 2018-2019 “trade war” period, while focusing more on trade barriers & restrictions to hinder the Chinese economy. Campaign pledges from Presidential candidate Mr. Trump, suggest a relative favoring of tariff rates to conduct trade policy.
On the other side of the Atlantic, the European Commission maintained roughly stable compared with three months ago its real GDP forecasts for the euro area, at +0.8% in 2024 and +1.4% in 2025, from +0.4% in 2023. The outlook for a gradual recovery is reinforced by actual data and leading indicators so far in 2024.
Indeed, euro area real GDP posted signs of revival in Q1:2024, up by +0.3% qoq (+0.4% yoy), after roughly stagnating for five consecutive quarters since Q4:2022. The outcome was above consensus estimates for +0.2% qoq. In addition, April’s PMI leading indicator suggests that a positive momentum extended in the start of the current quarter as the composite index came out at an 11-month high of 51.7 (above consensus for 50.7), from 50.3 in March and 49.1 on average in Q1:2024.
Some risks facing investors have moderated compared with mid-April (e.g. the Fed confirmed its bias regarding interest rate cuts, China’s policy easing), hence risk appetite has improved further and risk assets have rallied. Global equity markets gained further ground in the past week, with major bourses returning to record highs (MSCI ACWI: +1.6% wow & +9% YtD).
Softer-than-expected US CPI inflation, albeit still above Fed’s target, reinstated financial markets’ expectations for a “soft landing” of the economy and two rate cuts by the Federal Reserve in the second half of the year, supporting equities (S&P500: +1.5% wow & +11% YtD) and pushing US Treasury bond 10-year yields lower by -8 bps wow to 4.42%.
In addition, equity markets remain unperturbed despite trade concerns and geopolitical flare ups. We expect trade relations to gradually take center stage in asset allocation decisions ahead of November 2024 US Elections.
The US federal government announced an increase in tariffs on certain goods imports from China. The items include steel, aluminum, semiconductors, batteries, critical minerals, solar cells, ship-to-shore cranes, various medical products and, more profoundly so, electric vehicles, for which the tariff rate will quadruple to 100% effective as soon as in 2024 (mid-August).
The import value of the affected items is estimated at $18 billion or c. 4% of total (annual) goods imports from China and c. 0.6% of total US goods imports. As a result, the decision is not expected to exert a meaningful upward impact on US consumer inflation.
The rationale of the decision is to “level the playing field” for certain products for which, according to the White House, Chinese manufacturers enjoy an unwarranted pricing advantage, stemming from State subsidies covering a big part of production costs. China vowed to “take all necessary measures to defend its rights and interests”, albeit an extended and deepening “tit-for-tat” on tariff rates does not appear the most likely scenario, at least up to November 2024 US Elections).
Recall that the current Administration in the US, had roughly maintained up to the latest decisions the increased tariffs imposed during the 2018-2019 “trade war” period, while focusing more on trade barriers & restrictions to hinder the Chinese economy. Campaign pledges from Presidential candidate Mr. Trump, suggest a relative favoring of tariff rates to conduct trade policy.
On the other side of the Atlantic, the European Commission maintained roughly stable compared with three months ago its real GDP forecasts for the euro area, at +0.8% in 2024 and +1.4% in 2025, from +0.4% in 2023. The outlook for a gradual recovery is reinforced by actual data and leading indicators so far in 2024.
Indeed, euro area real GDP posted signs of revival in Q1:2024, up by +0.3% qoq (+0.4% yoy), after roughly stagnating for five consecutive quarters since Q4:2022. The outcome was above consensus estimates for +0.2% qoq. In addition, April’s PMI leading indicator suggests that a positive momentum extended in the start of the current quarter as the composite index came out at an 11-month high of 51.7 (above consensus for 50.7), from 50.3 in March and 49.1 on average in Q1:2024.