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Investors hopeful of June rate cuts from FED and ECB

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Investors hopeful of June rate cuts from FED and ECB

US equity markets experienced weekly declines despite some major indices having hit intraday highs on Friday.

Research Team
Research Team

Stocks had experienced a downbeat start to the week on underwhelming news out of China, however momentum picked up on Wednesday with Federal Reserve chairman Jerome Powell testifying before Congress. Powell stated that the Fed was “not far” from having the confidence that the downtrend in inflation can be sustained, enabling it to begin cutting interest rates. This raised the odds of the first rate cut of this cycle occurring in June and helped push stocks higher.

Stocks also initially gained on Friday after the release of the non-farm payrolls report, where employers added 275,000 jobs in February, topping expectations, with the S&P 500 and Nasdaq briefly touching intraday records. However, they ultimately ended lower for the session and indeed the week, with the unemployment rate ticking up to 3.9% and wage growth slowing, as well as a degree of profit taking given the recent rally. For the week the S&P 500 ended 0.3% lower, the Dow Jones was down 0.9% and the Nasdaq lost 1.2%. Technology stocks were some of the biggest laggards, with Nvidia’s rally faltering on Friday. In contrast, Apple managed to snap a seven-day losing streak on Friday. Treasury yields slipped for the week following the mixed economic data and Powell’s comments. The yield on the 10-year Treasury note fell as low as 4.03%, its lowest level in a month, ending the week at 4.09%. Meanwhile Bitcoin continued its ascent, setting a fresh record on Friday and inching ever closer to the $70,000 level, while gold also traded at an all-time high.

It wasn’t just the prospect of Fed rate cuts lifting the mood, the European Central Bank also appeared to set the stage for a June rate cute. While the central bank left interest rates on hold, president Christine Lagarde acknowledged that good progress had been made in getting inflation back to target, with it now seeing inflation dropping to 2% in 2025 rather than 2026, and that they would know a lot more from data in June. For the week the pan-European STOXX 600 climbed 1.1%, its seventh consecutive rise and once again notching a record high. France’s CAC also ended at a record, adding 1.2% for the week, with most other regional indices also seeing gains. One outlier was the UK FTSE 100 which dropped 0.3%.

Japanese performance was mixed, with the Nikkei 225 drifting away from recent record peaks, down 0.6%, while the Topix index added 0.6%. The yen strengthened against the US dollar, hitting its highest level in a month, weighing on exporters. Nominal wages grew more than expected in January while inflation in Tokyo increased 2.5% year-on-year, raising expectations that the Bank of Japan could soon start raising interest rates. In China, the Shanghai Composite was up 0.6%, even against an uncertain economic outlook. At the National People Congress, Beijing set its economic growth target for this year at around 5%, the same as last year, a target some analysts described as ambitious, given last year had a degree of a post-lockdown bounce-back. On the bright side, export and import data for the first two months of the year rose more than expected.

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. 

This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.