The ECB and the US Federal Reserve are planning to raise rates this week

By JustMarkets

At the closing of the stock market on Friday, the Dow Jones (US30) gained 0.80% (+0.87% for the week), and S&P 500 (US500) increased by 0.83% (+0.91% for the week). The NASDAQ Technology Index (US100) gained 0.69% (+1.44% for the week).

The Personal Consumption Price (PCE) Index, excluding food and energy, the Fed’s preferred measure of core inflation, was up 0.3% in March from the previous month. The PCE price data, especially with rising labor costs, support projections that Fed policymakers will raise the benchmark interest rate by another quarter percentage point at this week’s meeting. Fed officials and markets remain at odds over the future trajectory of interest rates, with the Central Bank expecting interest rates to remain at current levels through 2023, while investors are betting on lower rates by the end of the year. Given renewed signs of stress in the banking sector in recent days, as well as problems at First Republic Bank (FRC), Fed officials may signal a pause in June.

Equity markets in Europe traded flat on Friday. German DAX (DE30) gained 0.74% (+0.44% for the week), French CAC 40 (FR40) added 0.10% (-0.72% for the week), Spanish IBEX 35 (ES35) decreased by 0.79% (-1.52% for the week), British FTSE 100 (UK100) closed on Friday in the plus 0.50% (-0.55% for the week).

According to current prices, there is a 78% chance the ECB will raise interest rates by 25 bps this week. But much will depend on the inflation data coming out on Tuesday (CPI) and Wednesday (PPI). The main focus is on core CPI inflation. If this indicator shows signs of growth, the ECB might go back to the 0.5% step at the May meeting. But it should be noted that Eurozone GDP fell by 0.1% for the last quarter, indicating that high-interest rates are already starting to slow economic growth.

On Friday, the International Monetary Fund urged the ECB to keep raising interest rates until mid-2024 and European Union finance ministers to tighten fiscal policy as part of a concerted effort to reduce high inflation.

The Swiss National Bank (SNB) is demanding an overhaul of banking regulations after the collapse of Credit Suisse. Future regulations will force banks to hold sufficient assets that can be pledged as collateral so that existing liquidity facilities can be used. This would allow the central bank to provide the necessary liquidity without having to pass emergency legislation.

The World Bank yesterday published its latest Commodity Market Outlook report for 2023. Energy prices are projected to average $84 per barrel this year. Also, over the weekend, it became known that OPEC+ countries plan to reduce production levels further ahead of the summer to support black gold prices.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) gained 0.78% over the week, China’s FTSE China A50 (CHA50) gained 2.22%, Hong Kong’s Hang Seng (HK50) ended the week down by 0.77%, India’s NIFTY 50 (IND50) jumped by 2.31%, and Australia’s S&P/ASX 200 (AU200) decreased by 0.73%.

The Bank of Japan forecasts a slowdown in inflation to 1.6% in fiscal year 2025 and said the risks to that price outlook have been shifted downward. The Bank of Japan (BOJ) kept interest rates ultra-low on Friday but announced a plan to review its past monetary policy moves.

China’s manufacturing activity unexpectedly declined in April, adding to problems for the economy in the midst of a mixed recovery from COVID-19 with sluggish global demand and a still fragile domestic real estate sector. The official manufacturing purchasing managers’ index (PMI) was 49.2, down from 51.9 in March. Taiwan’s economy plunged into recession after contracting at its fastest pace since the global financial crisis. The 3.02% drop is the sharpest since the end of the quarter in June 2009, highlighting the difficult outlook for the trade-dependent economy. Singapore’s core inflation, a key indicator tracked by the central bank, slowed for the first time since October.

In the commodities market, futures on sugar (+8.34%) and natural gas (+7.39%) showed the biggest gains last week. Futures on palladium (-6.49%), wheat (-5.87%), corn (-5.04%), platinum (-4.41%), lumber (-4.04%), and coffee (-2.98%) showed the biggest drops.

S&P 500 (F) (US500) 4,169.48 +34.13 (+0.83%)

Dow Jones (US30)34,098.16 +272.00 (+0.80%)

DAX (DE40) 15,922.38  +121.93 (+0.77%)

FTSE 100 (UK100) 7,870.57 +38.99 (+0.50%)

USD Index 101.67 +0.17 +0.17%

• – Japan Manufacturing PMI (m/m) at 01:00 (GMT+3);
• – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.