1/ WILL THEY, WON’T THEY?
Hints of whether the Fed still expects interest rate cuts at some point this year takes centre-stage for investors at the central bank’s meeting that concludes on Wednesday.
Rate action is unlikely, but comments from Fed Chair Jerome Powell about the potential for policy easing later in 2024 will be scrutinized.
In March, the Fed projected three rate cuts this year but stronger-than-expected inflation reports are casting doubt on whether it will be able to ease policy that much – and that soon.
A ratcheting down of rate cut expectations has been a key factor behind the rise in Treasury yields and recent pullback in stocks. Fed futures markets now predict some 35 bps of easing in 2024 down from 150 bps expected at the start of the year.
2/ TECH TALK
The last of the “Magnificent Seven” megacaps that drove a fiery stock rally in 2023 to report are Amazon, reporting Tuesday, and Apple, on Thursday.
Some of their peers such as Tesla and Facebook parent Meta Platforms have given a mixed performance.
Apple shares have lost their lustre in 2024, tumbling over 10%. The iPhone maker is expected to post a decline in first quarter earnings after China smartphone shipments fell 19%.
Amazon’s cloud computing business will be in focus while investors will be attuned to the online retailing giant’s view of consumer spending. Its shares are faring better so far this year, having risen 18% as of Wednesday.
Meanwhile, tech regulation is also on the front burner. President Joe Biden just signed legislation that bans TikTok in the United States if Chinese owner ByteDance fails to divest the short video app over the next nine months to a year.
3/ RAY OF HOPE
Following last month’s upside surprises on manufacturing activity in China, April’s readings are set to indicate whether the long-awaited economic recovery is indeed gathering steam.
Official figures for China’s purchasing managers’ index (PMI) are due on Tuesday and the Caixin/S&P Global manufacturing PMI survey is expected shortly afterwards.
Upbeat data could revive animal spirits in the world’s second largest economy, bringing relief to policymakers who have been trying to shore up growth and bolster investor sentiment.
Global investment houses have turned increasingly bullish on Chinese stocks, helping the blue-chip index tack on more than 10% from a February trough.
But Beijing has lately found itself in a bind over its currency. The yuan is sliding against a perky dollar but is stronger against its major trading partners – an unwelcome sign for China’s export-reliant economy.
4/ PAVING THE WAY
Euro zone inflation and economic growth data due out on Tuesday could strengthen market bets for the European Central Bank to lower its deposit rate from a record 4% in June, although policy makers are not expected to move very fast thereafter.
Gross domestic product in the euro zone currency bloc probably expanded by just 0.1% in the first quarter, year-on-year, economists polled by Reuters expect the data to show.
April inflation numbers could also convince the ECB it’s time to cut, after consumer price growth slowed unexpectedly to 2.4% in March and policymakers signalled that the central bank was willing to move.
But with U.S. inflation running hot and the Fed viewed as likely to hold rates high, markets price 60 bps of cuts by the ECB this year as it remains wary of the euro weakening too much against a supercharged dollar.
5/ SELL IN MAY
Conventional wisdom has it that May is the ideal point to take profit on equities and lay low until later in the year.
“Sell in May and go away” is based on the premise that the best six-month period for stock market returns is November to April, while the leanest is May to October. Over the last 50 years, the S&P 500 has gained an average of 4.8% between November and April, and just 1.2% between May and October, according to Reuters calculations.
However, this pattern fades over a shorter time-frame.
Over the last 20 years, the out-performance of November-April over May-October narrows to 1%. Over 10 years, November-April has underperformed May-October by 1 percentage point and over the last five years, it has underperformed by 3 percentage points.
It might be time to find words that rhyme with “November”.