Weekly market recap

Your weekly global financial market newsletter

  • US Treasury Secretary Janet Yellen is making her second visit to China in nine months. Her first visit in July 2023 was marked by trade and efforts to normalise bilateral economic relations after a period of heightened tensions caused by disagreements over issues ranging from Taiwan to the origins of COVID-19 and trade disputes.
  • In her current visit on Friday, she said there was growing concern about the global economic impact of excess manufacturing capacity in China, and made the issue a major topic of four days of economic talks with Chinese officials.
  • Yellen said China would benefit from a reduction in excess industrial capacity that is weighing on other economies, including the U.S. Yellen is concerned about the overproduction of electric cars, solar panels, semiconductors and other goods that are flooding world markets as a result of a drop in demand in China's domestic market. This is not healthy for China, she said, and is hurting manufacturers in other countries. Beijing, she said, should move away from state-led investment and return to the market-oriented reforms that have fuelled growth in past decades.
  • Beyond criticism, however, it is also about cooperation, particularly in limiting financial risks arising from potential bank failures in both economies. The United States and China announced the formation of a financial working group in September as a venue for policy discussion and information exchange. In January, the group met and discussed their respective frameworks for dealing with large global banks, according to the Treasury Department.

Indices

US equities strengthened on Friday thanks to good data from the labour market. For the whole week, they notched up fairly significant losses after the release of the March ISM manufacturing reading on Monday, which came in well above expectations and indicated expansion for the first time in 16 months. The DJIA index posted its worst week this year.

European stocks ended a ten-week rising streak amidst escalating tensions in the Middle East and a recalibration of investor expectations regarding Federal Reserve rate cuts. The pan-European STOXX Europe 600 Index fell 1.19%, France’s CAC 40 Index dropped 1.76%, Germany’s DAX weakened 1.72%, and the UK’s FTSE 100 Index declined 0.52%.

US30
-2.45%
US100
-1.28%
US500
-0.83%
GER30
-1.72%

Commodities

Oil prices reached their highest level since October on worries over rising tensions in Europe and between Israel and Iran, and also on a decision by major exporters to maintain production limits despite tight markets. Stronger-than-expected US jobs data released on Friday bolstered the demand outlook in the USA, while investors look forward to the latest inflation readings this week.

Both gold and silver strengthened during the week, thanks to the aforementioned escalation of tensions in the Middle East and hopes of interest rate cuts. Higher rates do not suit non-yielding assets such as gold or silver, but Friday’s good news from the US labour market and a possible postponement of the rate cut still did not hurt gold or silver and both precious metals strengthened at the start of the week. This has taken silver to three-year highs, and gold again broke its all-time highs on Monday morning.

Gold
+3.52%
Silver
+9.58%
BRENT
+4.48%
NATGAS
+1.89%

Forex

The Canadian dollar hit four-month lows against the US dollar over the past week after contrasting labour data between Canada and the United States supported a divergence in the outlook of monetary policy for their respective central banks. While unemployment in Canada rose to 6.1% in March , well above market expectations of 5.9%, in the US we saw a stronger-than-expected jobs report. This supported the Bank of Canada’s rhetoric that restrictive borrowing costs are having a greater impact in the Canadian labour market, despite the strength in recent GDP reports, to suggest that the Governing Council could consider cutting interest rates in the incoming meetings.

In the US, the result is the opposite, and the possibility of monetary easing is thus pushed into the distant future. Minneapolis Fed President Neel Kashkari suggested that rate cuts might not be warranted this year if inflation persists in its stagnation. The US Dollar Index broke above 105 at the start of the week, recording its highest level since early 2024.

EUR/USD
+0.42%
USD/JPY
+0.20%
GBP/USD
+0.12%
USD/CAD
+0.38%

Macro

The first week of the month is traditionally focused largely on the US labour market. The latest employment report revealed that the US added the most jobs in ten months and the country’s economy created 303,000 new jobs in March, beating market estimates. In contrast, the unemployment rate unexpectedly fell from two-year highs and employers continued to raise wages at a steady pace. These data suggest that the labour market remains tight, increasing the chances of a soft landing for the U.S. economy and potentially delaying a widely expected interest rate cut. Earlier, Minneapolis Fed President Neel Kashkari and Fed Chairman Powell indicated that they were in no hurry to cut rates.

The growth in the labour market picked up already on Wednesday with data from ADP showing that US private companies hired 184k workers in March 2024, up from an upwardly revised 155k in February and beating the forecast of 148k. This is the largest increase in jobs in eight months.

Mixed data regarding purchasing managers’ indices elicited mixed reactions among investors.PMIs in the manufacturing sector indicated signs of expansion, which was also confirmed by the PMI in the services sector, but which has now declined for two consecutive months.

Annual headline inflation in the euro area fell to 2.4% in March from 2.6% in February, compared to forecasts. Core inflation, which excludes volatile food and energy prices, also slowed to 2.9% from 3.1%. However, annual services price inflation reached 4.0% for the fifth consecutive month.

S&P Global revised its estimate for the eurozone’s composite purchasing managers’ index (PMI), which includes services and manufacturing, to 50.3 in March from an initial 49.9. A reading above 50 indicates an expansion of private sector business activity.

What to watch out for this week

  • Next week will be marked by the ECB meeting, geopolitics and macro data. In terms of economic data, investors will be assessing German industrial production and inflation, US manufacturing and consumer inflation, or UK industrial production and trade balance.
  • Additionally, the European Central Bank is scheduled to convene for a monetary policy meeting on Thursday. It is anticipated that there will likely be no adjustment in rates, in line with the tone set in the previous meeting. Market sentiment suggests that any potential changes are not anticipated until June.
  • In the US, inflation is expected to accelerate slightly to 3.4% y/y (after 3.2% in February), but on a month-on-month basis this should mean a slowdown from 0.4% to 0.3%. Easing inflationary pressures should gradually move the Fed closer to the start of rate cuts. Should their retreat fail to materialize, pushing the Fed's first rate cut further into the future is a possibility.
  • The ECB is likely to leave rates unchanged, but could already offer clearer signals regarding the imminence of the first rate cut, which it is likely to commit to in June. But the ECB's communication should remain hawkish given the uncertainty over the next trajectory of disinflation.

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