04 April 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
"The ADP employment survey in the US, published yesterday afternoon, showed a labour market that gained the largest number of jobs in a month since last July, with a jobs gain of 184,000, following an upwardly revised rise of 155,000 in February. Alongside this, data showed that wages are once again likely to be a challenge for the inflation target of 2% with median pay gains of 5.1% for job-stayers, halting months of steady deceleration, and 10% for job-changers, a sharp increase on the previous month and coming from sectors such as construction and manufacturing, which had been laggards for the US economy in recent months. This may be signalling the beginnings of a fresh inflationary pulse in the US amidst ongoing labour shortages, many of which have been dampened down by high levels of immigration – a concern for much of the electorate and one that politicians are looking to challenge, despite the potential economic consequences."
"Last night also saw Fed Chair Powell speaking at a forum in California, serving to further muddy the waters around the timing of upcoming potential rate cuts. Declaring that the Federal Reserve’s job of bringing down inflation was “not yet done” and that the central bank needed “greater confidence” that inflation was returning to target, this could have been taken as a signal that it is too early to pencil in any changes to monetary policy in the coming months. Others however focussed on comments that recent data, showing a strong economy and stubbornly high core inflation, didn’t “materially change the overall picture”, taken to justify market expectations of 71bps of rate cuts by year end. Ultimately, data out in the coming months will determine the likelihood of rate cuts, but if the current trajectory continues then expectations seem likely to be pushed out further, with added risk for markets should we return to a ‘higher for longer’ scenario."
"Eurozone inflation, published yesterday, demonstrated that whilst economic growth may be more sluggish, this has allowed headline CPI to fall more quickly, currently standing at 2.4%, lower than the 2.5% expected by markets. This underlines the growing likelihood that European investors can anticipate rate cuts with a little more certainty than those in the US, with June looking increasingly likely to see a rate reversal kicked off. Whilst this will be an obvious support to the German economy, which is struggling to find growth amidst higher energy costs, rising competition from China and tight government spending, southern Europe is currently enjoying a stronger recovery supported by a looser approach to fiscal policy. With attractive valuations on offer, this region is being looked at more favourably by active fund managers who can use the differentiation on offer across the region to their advantage."
