Weekly recap of world’s major stock markets; China, USA, Japan and Europe.
U.S.
Inflation disappoint
Major equity benchmarks retreated due to Middle East conflict fears and inflation pressures, pushing long-term Treasury yields higher. Large-caps held up better than small-caps, while growth stocks fared better than value shares. The Labor Department’s CPI data showed headline prices rising by 0.36% in March, with medical services prices rebounding and transportation costs rising 10.7%. Overall inflation rose 3.5% over the past 12 months, its biggest gain since September.
Supercore inflation reached its highest level
Supercore inflation reached its highest level in almost a year, with a 0.7% increase in March and 4.8% over the past 12 months. This is the biggest increase in 10 months. Futures markets are pricing in a 20% chance of a rate cut at the Federal Reserve’s June policy meeting. Central bank officials have confirmed a change in their perspective following the CPI release, with Richmond Fed chief Thomas Barkin and Boston Fed President Susan Collins arguing against an imminent need to cut rates.
Iran’s imminent strike on Israel
Stocks dropped sharply due to reports of Iran’s imminent strike on Israel, leading to increased oil prices and the U.S. dollar. The CBOE Volatility Index spiked to its highest level since November. Consumer inflation data drove the yield on the 10-year U.S. Treasury note to its highest intraday level since November. Tax-exempt municipal bond markets were cautious, with both investment-grade and high-yield corporate bonds meeting healthy demand.
Europe
The pan-European STOXX Europe 600 Index ended 0.26% lower, with major stock indexes falling. However, the UK’s FTSE 100 Index gained 1.07% due to the British pound’s weakness. Yields on French, German, and Italian government bonds jumped due to US inflation accelerating faster than expected in March. The European Central Bank held key rates steady but hinted at lowering them soon.
ECB rate cut soon
The European Central Bank (ECB) has set a record high key deposit rate of 4.0%, but may reduce monetary policy restrictions if an updated inflation assessment in June increases confidence in sustained inflation convergence. The ECB is “data-dependent” and U.S. and eurozone inflation are not the same. Yields on French, German, and Italian government bonds jumped due to U.S. inflation accelerating faster than expected in March.
UK economy grow
UK economy expands 0.1% sequentially in February, 0.2% in three months, with manufacturing output rebounding. January GDP growth revised 0.3%, recession exited.
Eurozone consumer confidence
Eurozone investor confidence reached its highest level in over two years in April, according to Sentix’s index. German industrial production rose 2.1% in February, driven by increased construction output, despite a 0.5% decrease in production in the previous three months.
Japan
Japan’s stock markets rose, with the Nikkei 225 Index up 1.4% and TOPIX rising 2.1%. Investors awaited authorities’ support as the yen reached a 34-year low. The 10-year Japanese government bond yield reached its highest level since November 2023.
Yen weakened
The yen weakened to a key level beyond the 152 level, indicating potential intervention by Japanese authorities in foreign exchange markets. Despite this, finance ministry authorities are examining factors behind currency moves and will act on excessive yen weakness.
Yen leads to rate hike
Bank of Japan Governor Kazuo Ueda has ruled out a rate hike in response to a weak yen, stating that the central bank would not change its monetary policy directly. The BoJ recently ended its negative interest rate policy and unwound its yield curve control program. Market expectations now converge around two further rate hikes within a year.
China
Chinese stocks retreated due to weak inflation data and lackluster demand in the economy. The Shanghai Composite Index declined 1.62%, while the CSI 300 gave up 2.58%. China’s consumer price index rose 0.1% in March, while core inflation rose 0.6%. The producer price index fell 2.8%.
China trade data
China’s exports and imports fell in March, with exports shrinking 7.5% and imports dipping 1.9%, respectively. This setback to China’s reliance on external demand and added pressure on Beijing to increase stimulus measures to achieve its 5% annual growth target.
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