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Points to ponder for the Fed

César Pérez Ruiz, Chief Investment Officer, Pictet Wealth Management.


In a shortened week, US equity markets continued to grind forward, with the S&P 500 managing a return of over 10% (in USD) in Q1 as a whole thanks to excitement around AI, the prospect of rate cuts, a resilient US economy and improving earnings forecasts. Signs that market gains were broadening out beyond ‘Big Tech’ were on display last week, with the small-cap Russell 2000 ​ rising far more than the S&P500, while the Nasdaq ​ ​ dropped back slightly. Chinese and other Asian (ex Japan) markets struggled last week, as they did throughout Q1. Government bond markets were quiet last week, but yields were still up over Q1 as a whole. As testimony to the ‘risk-on’ mood, noninvestment-grade credits outperformed their investment-grade rivals in Q1. Despite the rise in US yields and high real rates, gold prices rose in Q1 and last week as did oil prices


“The exact date of [the ECB’s] first cut – April or the start of June – is of no existential importance…I firmly believe it should come in the spring, and independently of the US Federal Reserve calendar.”

François Villeroy de Galhau, Governor of the Banque de France


The headline personal consumption expenditures (PCE) index in the US rose to 2.5% annually in February while core PCE came in at 2.8%. Consumer spending surged 0.8% in February (up from 0.2% in January), while US GDP growth was revised up to an annualised 3.4% in Q4 from 3.2%. ​ ​ ​ ​ ​ ​ ​

Germany’s GfK consumer confidence index climbed for the second consecutive month in March, but Germain retail sales fell more than expected in February (-1.9% from January and -2.7% from a year earlier), while five leading economic research institutes lowered their 2024 GDP forecast for Germany to 0.1% from an earlier projection of 1.3%. ​

The core consumer price index in the Tokyo region rose an annual 2.4% in March, down from 2.5% in February. The official purchasing managers indexes for Chinese manufacturing and nonmanufacturing rose in March, to 50.3 and 53, respectively.


February PCE inflation figures in US came in more or less as expected, although an annualised three-month core PCE that rose to 3.5% (from 2.6% in January) may give the Fed pause for thought. In addition, climbing markets and M&A (see below) suggest financing conditions are not so bad despite successive rate rises. With Fed governor Christopher Waller saying there was “no rush” to cut rates, questions will continue to be raised about the timing and extent of monetary easing in the US in the coming months.

M&A deals worth at least USD10 bn more than doubled in Q1, to 11 from five a year before, while the total value of global M&A deals rose 30%. This points to a revival in M&A deals after two years of subdued activity. Big M&A deals are concentrated in the US for now, but we expect the pick-up to extend to European and Asia in the months to come. ​

France’s budget deficit climbed to 5.5% last year, outstripping forecasts, forcing the government to scramble for savings. Together with the court decision late last year that forced the German government to freeze new budget spending, we believe fiscal tightening is one of the main risks to the recovery of the euro area economy.


Author EFI

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