Equity markets rallied further last week as macroeconomic data pointed to a slowdown in inflation, supported by better news on the health of US regional banks. Solid reports from luxury goods companies and the first set of US bank earnings also had a positive impact on risk appetite.

Bond yields rose slightly. The US 10-year yield hovered around 3.50% and the German equivalent was 2.40%.

In the US, inflation slowed to 5% in March, the lowest level since May 2021. But core inflation, which excludes food and energy, held steady at 5.6% from 5.5% the previous month, reflecting increases in housing and transportation costs.

US producer prices fell by 0.5% in March month-on-month, but rose by 0.1% excluding food, energy and trade services. On a 12-month basis, however, the rise in producer prices slowed to 2.7% on a headline basis and 3.6% excluding food, energy and trade services.

At the same time, retail sales fell by a larger-than-expected 1% in March, indicating that households are cutting back on purchases, particularly of cars and other big-ticket items.

All this points to a possible 25bp hike in the Fed funds rate at the next meeting in May, bringing the curtain down on the current tightening cycle.

In the Eurozone, CPI inflation in France was relatively stable in March compared with the previous month, at 6.7% versus 6.6%. In Germany, inflation was in line with expectations at 1.1% month-on-month and 7.8% year-on-year.

In addition, economic activity improved in February as industrial production rose by a better-than-expected 1.5% after a 1% increase in January.

In China, exports unexpectedly rebounded in March, partly reflecting pent-up demand in the form of unfilled orders from last year’s zero-covid policy. Exports rose 14.8% year-on-year last month, after falling 6.8% in January-February, compared with the consensus forecast for a 7.0% decline.

The S&P 500 ended the week up 0.79% while the tech-heavy Nasdaq rose by a more modest 0.29%. The Stoxx 600 Europe index gained 1.74% over the week.

This coming week will feature more earnings reports, plus the publication of the PMIs in the US.

Source: Bonhôte

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