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Weekly comment: Stocks pull back on strong US data

Date: 09 April 2024

3 minute read

Global stock markets moved lower last week with the MSCI All Country World Index falling 0.9% to pare year-to-date gains to 7.4%. Although this snaps the recent winning streak, the size of the decline was significantly trimmed by a rally on Wall Street into the weekend, following another strong set of US employment figures. Government bond yields rose on the week with the 10-year gilt yield moving back above the 4% level to close at 4.07%.

US stock markets ended the week down 0.9%, pulling back from their all-time highs. Still, benchmarks are up 9.5% year-to-date. The apparent reason for the declines was strong US economic data which seemingly reduces the chances of Federal Reserve interest rate cuts in the coming months. The first move lower in rates is now not fully priced in until September and market expectations have been dialled back substantially since the start of the year.

That said, ongoing economic strength is on the whole a positive driver for equities, even if it does mean less central bank stimulus in the near term. The release of the latest Institute for Supply Management (ISM) data — preceding the market decline — showed the first reading in expansionary territory in almost 1 ½ years, coming in well above expectations. There was also an upside surprise in the prices paid index, supporting other recent data suggestive of a rise in input prices.

European stocks underperformed, ending a 10-week winning run, and fell 1.3%. Rising oil prices also potentially weighed on sentiment, as Brent crude, the international benchmark, rose above US$90 a barrel to hit a six-month high. The UK fared a little better than its counterparts, dipping 0.5% to trim 2024 gains to 3.5%. There was also little change in the pound against the US dollar, which remained at 1.26 despite a growing disparity in interest rate expectations on either side of the Atlantic.

US labour market goes from strength to strength

The employers added 303k jobs in March, comfortably more than consensus expectations and extending a strong run of employment growth. The figure was comfortably higher than the 212k expected and came alongside a drop in the unemployment rate to 3.8%. There was next to nothing in the widely-followed report to support interest rate cuts anytime soon, with the last four months of data all showing comfortably more than 200k jobs added to an already strong labour market.

Equity futures initially dipped on the news as bond yields pushed higher, but there was a strong reversal once Wall Street opened as benchmarks posted daily gains in excess of 1%. While the rally at the end of the week wasn’t enough to recoup the weekly declines entirely, it did perhaps show that good news is not necessarily bad for stocks.

Given the strong run higher in equities during the past six months it would not be too surprising to see some consolidation in the coming weeks, especially after the sizable shift in expectations on interest rate cuts. However, persistent strength in economic data from the world’s largest economy is a good thing — as long as it’s not accompanied by renewed upwards pressure on prices.


Richard Carter

Head of Fixed Interest Research

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