The content of this post does not constitute financial advice. It is intended for information and education purposes only.
The Week in Global Markets
Financial markets summary:
– EUROPE: This week, ECB members continued to signal that rate cuts are most likely coming in June, with the number for the year still unclear but probably will be 3 or 4. However, oil prices need to be monitored closely because of the recent escalation of the Middle East conflict, as more drastic shifts can potentially lead to a re-acceleration of inflation. The performance of European stocks was mixed: the STOXX 50 and STOXX 600 indices both declined this week, accompanied by the German benchmark DAX index. At the same time, the Italian and French indices ended the week slightly higher. The Swiss SMI and British FTSE 100 index also declined. Inflation in the UK did slow down further in March, but not as much as analysts and the Bank of England expected, and services inflation in particular remained quite elevated at 6% YoY. The BoE governor indicated that there is now strong evidence that the disinflation process is working its way through. German and UK 10y government bond yields rose week-on-week, while the euro and the pound both depreciated further against the dollar.
– UNITED STATES: This week saw another decline in major US stock indices, likely reflecting geopolitical uncertainties (including the situation between Israel and Iran) and the adjustment to expectations about delays in the originally expected interest rate cuts. The S&P 500 declined on the week, led by drops in tech stocks, as well as those in the consumer discretionary, real estate and communication services sectors. Both mega-caps and small-caps experienced declines this week. The US 10-year Treasury yield moved slightly higher as Fed officials signaled that they have concerns over the recent data which appears to be reducing their confidence in reaching the inflation target and retail sales data for March turned out to be hotter than expected. The President of the Atlanta Fed stated that most likely the Fed will not be in a position to cut rates until the end of the year. Moreover, housing market data revealed continued tightness on the supply side, indicating that there might be further inflation pressures coming from the sector.
– ASIA-PACIFIC: Both the Nikkei 225 and TOPIX indices in Japan suffered significant losses this week, dropping 6.21% and 4.79%, respectively. At the same time, the government’s 10-year yield remained around the same level as last week, while the BoJ governor reiterated the central bank’s readiness to hike rates if the weakness of the yen continues. That weakness, however, is also what supported Japan’s exports which rose again over 7% on an annual basis in March. In China, the decline in home prices went on for a ninth consecutive month in March, despite government measures to support the sector. In contrast, Chinese stocks recorded a gain this week as the economy grew by 5.3% in Q1 (more than the expected 4.6%). However, growth data was also accompanied by slowdowns in exports, as well as disappointing data on bank lending, producer and consumer prices. Disappointing factory output and retail sales point to likely unsustainable growth momentum going forward, as domestic demand suffers from underlying weaknesses.
– BITCOIN: The largest cryptocurrency has now completed its fourth halving (on 20.04.2024 at 2:09 am CET), meaning that the per block reward for BTC mining has now dropped from 6.25 to 3.125 BTC. At the moment the price is slightly lower than where it was this time last Sunday at around $64.5k. Despite the halving, outflows from spot Bitcoin ETFs continued this week as well, mainly driven by the continuing exodus from GBTC and lower inflows into other funds.
policy rate overview
The People’s Bank of China (PBoC) kept its medium-term lending facility (MLF) rate unchanged at 2.5% on Monday. As mentioned earlier, data for March and the whole previous quarter showed there are still significant weaknesses that may require additional stimulus to sustain growth momentum and achieve growth targets.
Next week, the PBoC will decide on its Loan Prime Rate. We will also see policy rate decisions by the BoJ, as well as several European central banks – in Hungary, Türkyie, and the Russian Federation.
highlights from Germany
Sentiment is improving, current situation is not
The ZEW indicators show that the divergence between the overall economic sentiment and the current economic situation assessment remains very significant. While the April index went up, the latter remained rather depressed. The reason is that expectations are soaring on hopes that the recovery in the global economy will somehow pull Germany out of its current malaise in the next 6 months, including as a result of the USD appreciation against the euro which is expected to boost exports. However, the current situation is basically unchanged – and deeply negative
Wholesale prices still declining but at a more stable low rate
The overall price index fell by 3% YoY in March, while the wholesale prices of petroleum products fell by 3.3% YoY and increased MoM by 0.2%. Petroleum products had the greatest impact on the overall prices. Other notable price declines: grain, raw tobacco, seeds and animal feed (-19.8% YoY), ores, metals and semi-finished metal products (-13.6% YoY) and chemical products (-13.1% YoY) as well as with old material and residues (-6.4% YoY). On the other hand, there were increases in the wholesale prices of tobacco products (+5.8% YoY), fruit, vegetables and potatoes (+4.4% YoY) as well as for drinks (+4.2% YoY).
Building permits are not yet recovering
The dire situation in the construction sector goes on for now, despite the February rebound. The approved building permits declined again in the Jan-Feb period. Overall, the drop was 18.3% YoY, while single-family homes decreased by 35.1% YoY, two-family homes – by 15.4% YoY, and apartments – by 21.5% YoY. In Feb-24 approval was given for the construction of 18.2k apartments, i.e., 4.1k building permits less than in Feb-23.
The disparity in net wealth changes
The latest Bundesbank monthly report shows that, since the end of 2021, the growth in net wealth across all wealth groups in Germany has declined sharply. This was particularly steep for the bottom half of the wealth distribution, mainly as a result of a major drop in insurance claims due to valuation changes – an effect that was countered by the decline in liabilities and an increase in deposits since the start of 2023. For the two middle wealth groups (50%-90% and 90%-99%), the decline in wealth growth rates was driven by valuation losses on housing assets and a phased decline in holdings of listed shares and investment fund shares. The net wealth growth for the wealthiest 1% of the distribution was similar to the growth rate in the bottom half, initially driven by a significant decline in holdings of capital market-based forms of investment and housing wealth. However, since the start of 2023, holdings of debt securities and investment fund shares have increased markedly, meaning that the development of financial portfolios has recently contributed to a significant increase in net wealth due to valuation gains.
highlights from EUROPE
Industrial production edged up a bit
Industrial output in the EU and the euro area ticked up on a monthly basis in Feb but is still down YoY: for the EA +0.8% MoM / -6.4% YoY; for the EU +0.7% MoM / -5.4% YoY. The annual decrease was across all categories, while the monthly increase was in the production of intermediate goods, capital goods and durable consumer goods. Production of energy and non-durable consumer goods dropped MoM. The largest annual decreases were recorded in Ireland (-36.0%), Belgium (-12.7%) and Bulgaria (-8.4%). The highest increases were observed in Spain (+3.5%), Slovenia (+2.8%) and Denmark (+2.7%). Note that Ireland’s methodology is under review.
Goods trade surplus expands
Euro area and EU international goods trade surplus increased in February (€23.6bn and €22.1 bn, respectively): exports grew 0.3% YoY while imports declined 8.4% compared to last year. The main drivers were the surplus in the ‘machinery and vehicles’ sector which nearly doubled compared with Jan-24 and the continuing decrease of the deficit recorded for ‘energy’.
A recovery in construction
Construction output in the EU and euro area was up month-on-month in Feb-24 (+1.8% in both) but still lower compared to Feb-23 (-0.6% and -0.4%, resp.). The monthly increase was across the board:
– EA +3.5% / EU +3.4% for construction of buildings
– EA +4.1% / EU +3.6% for civil engineering
– EA +1.7% / EU +1.3% for specialized construction activities
Country-wise, the highest monthly increases in construction output were in Austria (+9.3%), Germany (+7.9%) and Slovenia (+6.3%), while the largest decreases were in Hungary (-8.5%), France (-2.1%) and Sweden (-0.9%). The largest annual decreases in production in construction were recorded in the Netherlands (-12.9%), Finland (-6.9%) and Austria (-5.9%). The highest annual increases were observed in Spain (+8.3%), Portugal (+4.4%) and Czechia (+3.7%).
highlights from THE UNITED STATES
Retail sales rose again in March
Advance estimates of US retail and food services sales, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $709.6bn, up 0.7% MoM and 4% YoY vs. Mar-23. In terms of components, Motor Vehicles & Parts declined the most (after last month’s surge) while Nonstore Retailers (internet retail) and Gas Stations increased the most. Department Stores & Electronics & Appliances also dropped further this month.
Monthly rise but annual stagnation in industrial production
US industrial production rose 0.4% in March but declined at an annual rate of 1.8% in Q1. Manufacturing output increased 0.5% in March, boosted in part by a gain of 3.1% in motor vehicles and parts – a sharp improvement, with the index reaching near all-time high; factory output excluding motor vehicles and parts moved up 0.3%. The indexes for durable and nondurable manufacturing moved up 0.3% and 0.7%, respectively, while the index for other manufacturing (publishing and logging) declined 0.2%. In contrast to the gains recorded in motor vehicles and parts, aerospace and miscellaneous transportation equipment, and wood products, the indexes for nonmetallic mineral products, furniture, and primary metals fell 1.8%, 1.0%, and 0.7%, respectively. Within nondurables, gains in the output of petroleum and coal products (4.8%) and chemicals (0.7%) were partially offset by a decline of 0.5% in the output of food, beverage, and tobacco products. Capacity utilization for manufacturing moved up 0.3pp in March to 77.4%, a rate that is 0.8pp below its long-run average.
Housing starts collapsed, building permits fell as well
Privately‐owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,458,000, i.e., 4.3% below the February rate, but 1.5% higher YoY. Single‐family permits were down 5.7% MoM. Housing starts slipped back into negative territory, dropping 4.3% YoY and 14.7% MoM, much more than expected. Multi-family, in particular, seems to be in an even more deepening recession. Housing completions in March were at a seasonally adjusted annual rate of 1.47m which is 13.5% down MoM and is 3.9% down YoY. Single‐family housing completions in March were 10.5% below the revised February rate. The March rate for units in buildings with five units or more was 502k. Existing home sales dropped YoY for the 31st consecutive month, 4% YoY in March, or 4.3% MoM. It’s the longest streak of declines in sales activity since the Global Financial Crisis. These drops were across all price buckets up to $750k, while for existing homes priced $750k-$1m and above $1m, sales increased. The median home price rose 4.8% YoY to $393,500.
highlights from THE UNITED KINGDOM
Inflation slows down further
The Consumer Prices Index (CPI) rose by 3.2% YoY in March 2024, down from 3.4% in February. It rose 0.6% MoM which was also lower than the 0.8% in the previous month. Core CPI rose 4.2% YoY, also less than in Feb. The Consumer Prices Index including owner occupiers’ housing costs (CPIH), however, changed by the same rate (3.8% YoY) as in February. The largest downward contribution to the monthly change in both CPIH and CPI annual rates came from food, with prices rising by less than a year ago, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago.
Stagnant retail sales in March
Retail sales volumes (quantity bought) were estimated to be flat (0.0%) in March 2024, following an increase of 0.1% in February 2024 (revised from 0.0%). Within retail, sales were mixed, with automotive fuel and non-food stores sales volumes rising by 3.2% and 0.5%, respectively. This was offset by falls in food stores and non-store retailers of 0.7% and 1.5%. The amount spent online, known as online spending values, rose by 0.1% MoM to March 2024, and by 1.7% YoY. As total spend showed no growth MoM, the 0.1% rise in the amount spent online increased the proportion of sales made online, from 25.8% in February 2024 (revised from 25.7%) to 25.9% in March 2024. On a quarterly basis, in Q1-24 sales volumes increased by 1.9% compared with the previous quarter. This was following low sales volumes over the Christmas period for retailers.
Vacancies continue to decline, while unemployment rises
Payrolled employees in the UK fell by 18k (0.1%) between Jan and Feb-24 but rose by 352k (1.2%) between Feb-23 and Feb-24. In the period from Dec-23 to Feb-24, the UK employment level (for those aged 16 years and over) is down on both the year and the quarter (estimated at 74.5% for that period). The unemployment rate was estimated at 4.2% for the Dec-23 to Feb-24 period, above estimates of a year ago and above the latest quarter’s number. The economic inactivity rate for those aged 16 to 64 years was 22.2%, above estimates of a year ago and up QoQ. In January to March 2024, the estimated number of vacancies in the UK fell by 13k QoQ to 916k. Vacancies fell QoQ for the 21st consecutive period but were still above pre-coronavirus (COVID-19) pandemic levels. Annual growth in employees’ average regular earnings (excluding bonuses) was 6% in the period Dec-23 to Feb-24, and annual growth in total earnings including bonuses was 5.6%. Real earnings growth (adjusted for inflation using the CPIH) for regular pay was 1.9% in the period Dec-23 to Feb-24, and for total pay was 1.6%.
Author: Nikolay
Founder of MoneyCraft
