Thursday was the strongest day of the week, with stocks rallying after the producer price index unexpectedly declined 0.5% in March, while year-on-year it eased to 2.7% from 4.9%. This followed on from consumer inflation data released in the previous session where CPI cooled to 5% year-on-year in March. However, the release of the minutes from the Federal Reserve’s March policy meeting revealed that officials were predicting a “mild recession” to start later this year, dashing hopes of a soft landing. Stocks also retreated after comments from a Fed official who signalled that he backed another rate hike. On Friday markets were pricing in around an 80% chance of a 25bps rate hike at the May Fed meeting.
For the week the S&P 500 added 0.8% and the tech-heavy Nasdaq rose 0.3%. Within the S&P, utilities and real estate sectors lagged while financials was one of the best performers. Bank stocks rallied after better-than-expected earnings from JP Morgan, Citigroup and Wells Fargo, with March’s banking turmoil having little immediate effect on the big lenders. Bond markets have since steadied as banking concerns have eased, and the 10-year Treasury note ended the week slightly higher at 3.521%.
European markets were higher on a brightening economic outlook. The pan-European STOXX 600 index was up 1.7% with gains also seen in regional indices. Eurozone industrial output rose 1.5% in February from the previous month, its fastest pace in six months. Markets were also weighing prospects for the next European Central Bank rate hike, with around equal chance of a 25bps or a 50bps rise. Given the improving eurozone outlook and a more hawkish ECB than the Fed, the euro hit its highest level against the dollar in over a year, touching $1.1068 on Thursday. European government bond yields also moved higher.
Japan’s Nikkei 225 ended the week 3.5% higher. Shares in the trading houses surged after news that Berkshire Hathaway had increased its share in the top five houses. Sentiment was also supported by dovish commentary from new Bank of Japan governor Kazuo Ueda. Chinese markets were more muted for the week. The Shanghai Composite was up 0.3% in its fifth consecutive weekly gain, although easing inflation figures for March raised questions over the strength of China’s economic recovery.
MSCI’s index of Latin American currencies hit an 8-year high on Thursday, benefiting from the weaker dollar after the cooling US inflation data. While the dollar did bounce back on Friday, the index still saw a weekly gain. Peru’s sol made gains with its central bank holding interest rates steady at 7.75%. The Brazilian real was also higher, while the Bovespa index also gained. A deceleration in Brazilian consumer inflation in March raised hopes that the central bank would ease monetary policy and this was further supported by comments from finance minister Fernando Haddad that the central bank had an opportunity to lower interest rates.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
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