Podcast: Flash Manufacturing and Services PMI data. BoJ rate decision and US PCE inflation.

Created: 22nd April 2024

What happened last week.

(A forex, index, and commodity market review)

US stock indices suffered considerable losses last week with the tech heavy NASDAQ losing over 5% as the “Magnificent 7” lost their shine. The markets are focused on the prospects for rate cuts and the proxy war between Israel and Iran, which is no more as Israel finally responded to the unprecedented attack by Iran from 13th April.

Weekly change (amount change and percentage change on the week)

FTSE -6 -0.07%

DAX -141 -0.79%

DOW -13 -0.03%

S&P -161 -3.14%

NASDQ -989 -5.49%

NIKKEI -1755 -4.51%

Hang Seng -126 -0.77%

Equity markets have now abandoned even the modest expectation of three rate cuts from the Federal Reserve this year. At the start of the year, investors were in cloud-cuckoo-land, expecting seven rate cuts in 2024, which always seemed outrageously optimistic and flew in the face in what the Federal Reserve members were saying. Even the three rate cuts that the FOMC are predicting have been dialled back by investors, as stickier inflation has been matched by retail sales data for March released last Monday which jumped by 0.7%, much faster than the consensus of +0.3%.

Last Monday US indices reacted badly to the retail sales report, with the S&P500 and NADAQ closing 1.5% lower. European stocks had to play catchup with those falls on Tuesday as the main indices tumbled with the FTSE100 falling 1.8% and the Stoxx Europe 600 down 1.5%, the biggest 1 day falls in 9 months.

The European reaction was more of an over reaction because the ECB and Bank of England are not under such investor pressure as the Federal Reserve, although some commentators in the UK believe forward rate swaps are too optimistic about rate cuts here in the UK.

Lower funding costs have been a main driver in equity gains this year. The dwindling US rate cut outlook has taken its toll and exposes those stocks that have made the most gains. The “Magnificent 7” equities made up of Microsoft, Apple, Amazon, Alphabet, Nvidia, Meta and Tesla have accounted for much of the gains in the S&P500 this year, representing about 25% of the total market cap of the S&P500 constituents. So, its not surprising to see these equities slump, dragging down both the S&P500 and NASDAQ. Not only are these trillion Dollar stocks heavy weights in the US, they are also responsible for pushing global stock indices down 4% this month so far.

The Israel / Iran proxy war is also a great concern to investors with the significant risk that the conflict develops into all out war.

Strategists fretted all week about when and what the Israelis would do in response to the unprecedented Iranian attack on Irael on 13th April. Belatedly Israel responded by attacking Iran close to its nuclear facilities, but the attack was deemed a warning and modest in comparison to the Iranian attack. The attack occurred in the very early hours Friday morning and the initial reaction pushed equity futures sharply lower and oil sharply higher. However, by European opening oil prices had receded from the $90 level on Brent Oil, closing at $86.52 per barrel; the price it was out before the Israeli attack.

Of course, hostilities are not over and there is still significant risk that a full-scale war breaks out but for now markets are relieved that both sides seemed satisfied, and investors can feel relieved. The bigger problem for investors is how sticky inflations remains in both the US and other developed economies and what the Fed’s view is on the persistent strength in the US economy and how this affects their thinking on rates.

EURUSD +0.16 +0.15%

GBPUSD -1.86 -1.48%

USDJPY +1.39 +0.91%

The US Dollar pushed higher last week reaching another 5-month high as investors reacted to the surprising strength in retail sales. Core inflation, reported 10th April, was stronger than the markets and Fed were expecting so investors were assuming retail sales would be weaker. Core Retail Sales were up n1.1% versus 0.5% expected whilst the previous month’s reading was revised up to 0.6%. A sticky inflation scenario with a more robust consumer will affect Fed calculations about future rate rises. The FOMC has suggested three rate cuts this year in its dot plot forecasts but investors now expect less. The CME Fed Watch tool now expects rates to end the year around 4.75 – 5.00% - just two rate cuts from the current 5.25 – 5.50% rate.

The outlook for rate cuts in the Eurozone and the UK is different with investors expecting the ECB to cut rates in June. Economic growth in Europe is a third of the growth in the US this year and with annual inflation in the Eurozone falling to 2.4% in March, investors expect the ECB to act at its meeting in June. Sterling suffered from technical selling at the end of last week as it breached the 1.24 versus the US Dollar. The outlook for rate cuts in the UK is for the first cut in August or possibly June – there is no meeting in July. Andrew Bailey expects inflation to fall close to the 2% target in the next two months before rising slightly again.

Gold +46 +1.96%

UK OIL -3.03 -3.38%

US OIL -2.79 -3.28%

Gold continues to reflect the macro events in both the middle East and Ukraine. Central Bank and speculative buying continues to support the precious metal. Gold may come under more pressure if the US dollar continues to appreciate and the risk of all out war in the Middle East subsides.

Oil was pushed higher in anticipation of an escalation in the Israel / Hamas / Iran war last week. It took nearly a week for Israel to respond to Iran when it sent missiles into the heart of its nuclear development region. Both Israel and Iran seemed to step away from all out confrontation which is likely down to some behind the scenes discussions between the US, Iran, and Israel. Oil spiked and dropped, wiping out the premium it took on in anticipation of a war between Iran and Israel.

Data and events in the coming week

(What traders need to look out for in the week ahead)

A quieter week this week with investors focus on the PCE inflation data, Manufacturing and Services PMI data and the Bank of Japan’s Monetary Policy meeting.



Eurozone Christine Lagarde speaking at Yale University. Clues about rate cut in June would be helpful. EURO sensitive.


Eurozone, UK & US Manufacturing and Services PMI data. A modest recovery in both sectors expected in the Eurozone and the US with the UK not expecting any change. The gap between the US and Europe remains stark, especially in manufacturing.


Germany IFO Business Climate survey. Large survey of manufacturers, builders, wholesalers, services, and retailers. Signs that business is improving in the block’s largest economy, but too early to tell.

US Core Durable Goods orders. Excludes big ticket items such as aircraft. Expected +0.3%.


US Q1 Advance GDP reading. First of three GDP readings which will underline the different growth trajectories between the US and Europe. Expected at 2.5% following Q4 reading of 3.4%. USD and US assets sensitive.


Japan BoJ policy meeting. The BoJ ended years of very accommodative monetary policy when they last met. Years of negative interest rates were reversed when rates were raised, only slightly, to 0.10%. the bank also abolished its yield curve control but said it would continue to buy bonds in the same amounts. Not much of a change. Investors expect the BoJ to maintain very accommodative policy with very slow and gradual rate rises in the future. No change this time. JPY pairs sensitive.

US Personal Consumption Expenditure. The Change in the price of goods and services purchased by consumers. This is the preferred measure of inflation used by the Federal Reserve. Given the intense focus on US interest outlook, the US Dollar and US assets will be very sensitive to this release.

US Revised UoM Consumer Sentiment. Slight downward revision. US consumer seems happier than others – as reflected in last Monday’s retail sales. USD sensitive.