Weekly comment: Markets pull back ahead of central bank decisions

3 minute read

Weekly podcast – Market overview

This week’s host, Head of Fixed Interest Research, Richard Carter discusses the ups and downs of the past week with Investment Manager Andrew Cartwright and Equity Research Analyst, Tom Gilbey. Among the topics discussed – inflation, interest rates and what markets will focus on next.

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Market overview – Alan McIntosh, Chief Investment Strategist

Global equities finished lower for the second week running last week, with the MSCI All Country World Index declining 0.4%. Still, the market is firmly higher on the year, up 6.0%. Government bond yields rose as US inflation data came in higher than expected, pushing back further market expectations for central banks to start reducing base rates.

The US consumer price index (CPI) rose 0.4% month on month in February, in line with expectations, but there was an upside surprise in the core component which also came in at 0.4%. A couple of days later the increase in price pressures was further supported by a rise in the producer price index (PPI), as the annual pace picked up to its highest level since September. These data points suggest that inflation may prove stubborn in falling below central bank targets and therefore the chance of policy loosening in the near time has decreased.

Reflecting this, the two-year Treasury yield increased 25 basis points on the week, closing at 4.48%. The 10-year yield increased 23 basis points to 4.31%, reaching a 3-week high. US stocks moved marginally lower, falling 0.1% to trim year-to-date gains to 7.6%.

Road to recovery

UK equities posted a decently 1% weekly gain, taking 2024 returns to 0.9%. There was positive news on the data front as a 0.2% increase in GDP for January, boosted by retailing and wholesaling, points to a recovering economy after it slipped into a technical recession last year. Employment data showed a tick up in the unemployment rate to 3.9% while wage growth excluding bonuses fell to 6.1% — the lowest level in 18 months.

Signs of a slight cooling in the labour market will be welcomed by the Bank of England and this week rate setters will discuss the possibility of lowering interest rates. A move is not expected but there could be hints that one is in the offing, should data remain supportive in the coming months. It’s a big week for central bank decisions with the Federal Reserve and Bank of Japan also convening to discuss monetary policy. The pound dipped last week to 1.27 from 1.29.