Markets Wrap (2H April)

"Not great, not terrible" notes from FED's meeting

On the first of May the FED has convened to publish a routine "no change" statement in regard to the policy rate. This has been as consensus predicted, given that the market expects the first cut to happen only in Autumn. The highlight of the meeting was the surprisingly dovish (compared to what the market expected) note from the officials and J. Powell. After the US has received the third consecutive inflation miss and March figure at 3,5%, there were fears that FED will take a hard hawkish pivot with comments on possible rate hikes. The fact there's little willingness to discuss increasing rates gave a bit of a relief to the markets. However, US rates will stay much higher compared to other western economies.

Non-US currencies under pressure

High US interest rates are strengthening USD and at the same time putting more pressure on to interest-rate sensitive currencies. Japanese yen was in the spotlight recently, with USD/JPY rate being pushed to 160 territory. Record high difference between low Japanese interest rates and record high US interest rates have already pushed the currency pair up almost 10% this year. The yen would have depreciated even further if it weren't for rumored intervention from Japanese authorities that propped up the lingering currency.
Swedish krona and Norwegian krone have both weakened as traders shift positions into less interest rate sensitive currencies. SEB group believes that the currencies will remain rather weak during this quarter. Furthermore, Sweden is poised to decrease rates either May or June, which puts further pressure on the currency. However, NOK should receive a bit more support in the short-medium term due to stronger economy and higher-for-longer interest rates.

1Q GDP growth surprises

The past few weeks have seen a flurry of GDP readings. USD GDP report showed 1Q annualized QoQ growth at 1,6%, rather high for a developed economy in this stage of the cycle, but lower than 2,3% predicted by the consensus. The eurozone managed to climb out of recession territory with an uplifting annualized growth of 1,3%. However, the growth is still coming from the services industry as manufacturing is lagging behind the global trend.

April paused the unstoppable stock rally

The stock market really seemed to be on an unstoppable rally up until last month. Almost all major western indices have continued growth to all-time highs without any significant drawdowns. However, US equities have took a breather due to a pickup in inflation and receding interest rate cuts while European stocks have fared a bit better. US S&P 500 index has receded around 4% from ATH, while the European STOXX 600 index is only 2% behind record high values. Better than expected economic growth and euro zone guidance still pointing to rate cuts next month have held up old continent's equity values.

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