πŸ“° Macro-News round-up
πŸ“Š #MarketNews

πŸ“£ Yesterday, we shared on social media several quotes expressed by Jerome Powell during his conference. In short, we think it hurts a bit to try to convince that everything is going according to plan: “materially change the overall picture which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2% on a sometimes bumpy path.” He said.

πŸ’­ The reality is that more and more voices are speculating what we said months ago, the rate cut will not happen as promised. Remember that initially, after Powell’s words in December, the market discounted a rate cut in March that never happened. We were always sceptical about this and bet on the current outcome from the beginning.

πŸ’‘ Incidentally, he also mentioned points that go in the direction of what we commented on several weeks ago in these reports. The key to inflation not coming back via labour costs is to increase productivity. Artificial intelligence will increase productivity, reduce labour costs. This very thing, which we mentioned when we talked about the underlying causes of current inflation, seems to be part of Gerome Powell’s speech last night: “The Fed’s projections assume productivity growth of 1 to 1.5%. IA should increase that productivity”. He said.

πŸ“‰ However, the discrepancy with regard to the rate cut seems to be becoming official. Raphael Bostic, president of the Atlanta Fed, stated that rates shouldn’t be lowered until this year’s fourth quarter. Bostic believes that in 2024, a mere quarter of a percentage point decrease will be necessary, a far cry from the three or more cuts that the majority of his colleagues predict.

πŸ—“οΈ “If the economy evolves as I expect, and that’s going to be seeing continued robustness in GDP and employment, and a slow decline in inflation over the course of the year, I think it will be appropriate for us to start moving down at the end of this year, the fourth quarter.” Bostic said.

πŸ‡ͺπŸ‡Ί Europe: The release of the PMIs, this time for services, continues to show that Italy and Spain are the only two countries showing favourable data. France shows a services PMI of 48.3, indicating economic contraction. Unusually, Germany shows how much better its services PMI is, reaching 50.3. The European average also improves relatively, rising to 51.5 from 50.2.

πŸ‡ΊπŸ‡Έ US: Yesterday, the ADP Non-Farm Payrolls survey was the first appetizer to tomorrow’s employment data. at 184k versus 148k expected, the labour market remains firm. if tomorrow’s data comes out in the same direction, the Fed will have a hard time keeping its promise to cut interest rates, and the market will suffer as a result. this afternoon, we will have the Continuing Jobless Claims data, which would add some more information on the subject.

πŸ’Ή Market: Yesterday, initially, the market responded with declines. Probably more motivated by Bostic’s words than by Powell’s words. However, at the moment, the market is still trading higher, having recovered some of yesterday’s losses. The SP500 continues to trade above 5,200 points, while the Nasdaq 100 remains above 18,200 points. In Europe, the Dax 40 is trading around 18,350 points, retreating from the 18,600 reached on Monday.

πŸ’° As a key factor to the Fed’s response, the dollar index DXY is down a full point to 104 points, but it should not be forgotten that the general trend during March was strongly bullish on the currency. In the bond market, however, the retreat in yields has had little effect, with the 2 year US bond down from 4.70% to 4.68% today, i.e. fixed income does not seem to be responding to Gerome Powell’s words.

🌎 Geopolitics: Yesterday, the EU condemned the attack on Iranian diplomatic facilities on Syrian territory, but was careful not to publicly blame Israel for it.

βš”οΈ On Ukraine, yesterday’s meetings confirm that NATO would coordinate assistance to Ukraine from more than 50 countries. This officially places NATO as the main military support in the war against Russia, proving once again that this confrontation is not really a war between Ukraine and Russia.

πŸ‡«πŸ‡· On the other hand, fears that, in the event of a Donald Trump victory, the United States will withdraw are openly expressed within the European Union.

πŸ‡«πŸ‡· In France, the left, which voted against sending French troops to Ukraine, seems to be giving its spleen to twist. The leader of the LFI would be in favour of France intervening in the war if a NATO country is attacked, therefore, in order to get France involved, it is only necessary that this event takes place in the coming weeks. It is important to consider that it will most likely be imperative to unite these political forces in France to prevent Le Pen from winning, who, like Donald Trump, is likely to have a much more reluctant stance to keep this endless war going.

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