Global Economy & Markets, Weekly Roundup 22/04/24

Sticky US inflation and geopolitical flare-ups remain top of mind for investors 

Global equity markets declined for a third consecutive week, with the MSCI ACWI down by -2.9% (circa -5% since its record high on March 29th). Elevated uncertainty regarding inflation dynamics in the US as well as the situation in the Middle East, has weighed recently on risk assets.

In addition, at this early stage, with 15% of S&P500 companies having reported, the Q1:2024 corporate earnings season is off to a mixed start. Meta, Microsoft, Amazon, Tesla and Google are scheduled to report this week.

On monetary policy prospects, recent officials’ commentary corroborated divergent prospects regarding very near-term rate decisions.  In the event, ECB President Lagarde suggested that it would take a “major shock” in economic data to derail a cut in rates at the June 6th meeting, whereas Fed officials including Chair Powell, appear to put the commencement of cuts in the federal funds rate on the back burner.  

In that context, US Treasury 10-Year yields were up by +12 bps wow to 4.62% for a third straight week, with strong economic data more than offsetting the downward impact from “safe haven” demand.

Attention in the current week also turns to the Bank of Japan’s meeting on April 26th which will also be accompanied by its quarterly Outlook for Economic Activity and Prices, for a better assessment of monetary policy prospects, as the Japanese Yen has depreciated significantly across the board year-to-date (-10% against the USD to ¥154.6). 

The latest Japanese inflation readings were somewhat weaker-than-expected, suggesting that the Bank of Japan will not rush to increase interest rates significantly further following its exit from NIRP after eight years (current policy rate target range of 0% to +0.1%).
In the event, headline CPI in Japan decelerated by -0.1 pp to +2.7% yoy in March, while CPI ex-Fresh Food, the inflation metric to which the Bank of Japan links its price stability target of +2% (annual growth), came out at +2.6% yoy from +2.8% yoy.
On global inflation, the IMF released in the past week its updated quarterly projections, maintaining a central scenario in which a meaningful deceleration continues. In the event, headline inflation for advanced economies is estimated to average +2.6% in 2024 (+2.4% yoy in Q4:2024) from +4.6% in 2023 (+3.1% yoy in Q4:2023), with a return to the threshold of +2% in 2025. Having said that, the IMF acknowledged recent signs of inflation regaining momentum, especially in the US.

Regarding global growth, the outlook for a “soft landing” of the global economy remains intact. According to the IMF, global real GDP growth is expected at +3.2% in both 2024 and 2025, matching the (subdued) performance in 2023. 

Revisions versus the respective estimates conducted in January 2024 were minor, with the figure for 2024 being slightly revised up by +0.1 pp due to a surprisingly sharp performance in the US (+0.6 pps to +2.7, with Q1:2024 GDP data due on Thursday). For the euro area, estimates were modestly revised down, by -0.1 pp to +0.8% in 2024 and by -0.2 pps to +1.5% in 2025, from +0.4% in 2023).
Global Economy & Markets, Weekly Roundup 22/04/24