Indices 

In early trading on Wednesday, the Dow experienced a gain of over 100 points, while the S&P 500 and the Nasdaq 100 rose by 0.6% and 0.8% respectively. This positive trend was sparked by data showing that US inflation had slowed more than expected in March, leading to hopes that the Federal Reserve’s monetary tightening measures may be nearing an end. However, on Friday, concerns among investors arose again as the target inflation rate still remains a distant goal, leading to concerns about potential future interest rate increases.

In Europe, stocks showed gains as fears of a recession diminished. The pan-European STOXX Europe 600 Index rose by 1.74% over the five trading days ending April 14, if measured in local currency terms. Major stock indices in Germany, such as the DAX, gained 1.34% while the UK’s FTSE 100 Index climbed by 1.68%.

Forex

The Dollar Index continued to decline for a third consecutive day, falling below 101 on Thursday and approaching its lowest levels since April 2022. This drop in value was fueled by growing expectations that the Federal Reserve would soon pause its tightening cycle, with some investors even speculating on potential rate cuts by the end of the year. However, the dollar did recover some of its losses on Friday, but still ended the week with a 0.95% loss against the Euro. This drop in value was largely in response to the recent reassessment by the Federal Reserve that inflation is still considerably below the 2% target, leading to uncertainty in the currency markets.

Macro

The annual inflation rate in the US continued to slow down for the ninth consecutive period, dropping to 5% in March 2023, which is the lowest level since May 2021. This is down from 6% in February and below the market expectations of 5.2%. On a monthly basis, the Consumer Price Index (CPI) only increased by 0.1%, falling short of the expected 0.2%. The rise in shelter prices by 0.6% offset a 3.5% decrease in energy costs, while food prices remained unchanged. The Core CPI, which excludes food and energy, increased by 5.6% on a yearly basis and by 0.4% on a monthly basis, in line with expectations.

In February 2023, the British economy stalled, following an upwardly revised 0.4% growth in January, and falling short of the expected 0.1% increase. The services sector declined by 0.1%, largely due to the impact of teacher strikes on education (-1.7%), as well as a decrease in public administration and defence (-1.1%). Additionally, production output contracted by 0.2%, primarily driven by a fall in the electricity, gas, steam, and air conditioning supply (-2.2%), while manufacturing remained unchanged.

Producer prices for final demand in the US experienced the largest decline since April 2020, falling by 0.5% on a monthly basis in March 2023, compared to the expectations of a flat reading. On a yearly basis, producer prices increased by 2.7%, the lowest level since January 2021 and below expectations of 3%. The core rate, which excludes food and energy, eased to 3.4% as expected, but core prices actually decreased by 0.1% on a monthly basis, surpassing the forecasts of a 0.3% rise.

Retail sales in the US also showed signs of decline, with a 1% month-over-month drop in March 2023, following a downwardly revised 0.2% fall in February. This suggests that cost pressures and rising interest rates may be impacting consumers’ willingness to spend. The core retail sales, which exclude automobiles, gasoline, building materials, and food services and are considered a key component of consumer spending in GDP, also decreased by 0.3%.