If you are covering the latest news in financial markets, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“Fed Chair Jerome Powell surprised almost no-one last night in keeping US interest rates unchanged, with the US now heading into a presidential election in six months’ time with little rate relief on the cards, stubbornly high inflation and signs of weakening consumer confidence. While markets were relieved to hear that rate rises were not being actively considered, long-term borrowing rates have nevertheless already moved higher over the course of the year, factoring in the shift to a ‘higher for longer’ approach, pushing up US mortgage rates in turn which now sit above 6.5%.
“While equity markets have in April given back a small amount of the strong returns generated in Q4 2023 and Q1 of this year, they do not require rate cuts in the near term to make progress, providing of course that economic growth can remain robust. This is exactly what happened in the late 1990’s, with healthy equity market returns even as interest rates remained elevated. However, it does make economic growth a crucial factor, and recent lumpiness in US macroeconomic data, such as quarterly GDP readings, has not helped market confidence.
“Further data out yesterday in the US added to investor concerns, with the ISM Manufacturing survey signalling the sector had fallen back into contractionary territory even as the survey measuring prices paid by companies jumped to its highest level in two years. Job vacancies also saw declines, but much of this has been about a return to normality following the pandemic – ultimately labour markets remain fairly tight and unemployment very low, offering a degree of support to the economy even as inflation remains problematic.”
