Market review

Market review

Weekly review 11 March 2024: USA for once beaten by European equities

The markets had a somewhat weaker week for a change when global equities declined, with the USA in the lead. The European equity markets continued their strong performance, closing the week in positive territory.

Friday proved dramatic on the US equity market, when Nvidia, a company that had become the world’s fourth largest company by market capitalisation, saw its stock price plummet by around 10 per cent. The upward volatility of the company’s share has been very high, so it is no surprise that significant drops may also occur. However, what makes the crash particularly noteworthy is that the company’s relative weight in the S&P 500 index is so significant.

Emerging market equity indices remained relatively stable throughout the week, while in Finland stock prices continued their slide. Japanese stocks have been very strong since the start of the year, and they rose last week too. The current economic cycle in Japan is different from the other Western markets, and the country’s central bank is considering raising its key interest rate, among other things.

The US labour market report for February was open to multiple interpretations. New non-agricultural jobs clearly exceeded expectations and wage development was more moderate than expected – a plus from the perspective of inflation. On the other hand, the exceptionally high number of new jobs recorded for January was revised down in the report by more than a hundred thousand, and the unemployment rate rose to a clearly higher level than expected. In the big picture, however, the labour market is doing well, which is vital for the country’s economic growth.

Economic data from Europe has long been negative, but the Citigroup Economic Surprise Index (CESI), which compares actual figures to expectations, has turned upward, which means that the data has become stronger relative to weak expectations. European PMIs are on the rise and glimmers of light have been seen in industrial production, not to mention that the labour market continues to be strong. The outlook for consumers is still subdued, however.

Inflation expectations falling in Europe

In its meeting on Thursday, the European Central Bank communicated that it currently expects inflation to fall to 2.3 per cent by the end of the year, while its prediction at the start of the year was 2.7 per cent. According to the ECB’s official stance, it will lower its key interest rate in June, but if a clear drop is seen in inflation in the spring, the central bank may end up starting the cuts earlier.

The expectations for and pricing in of interest rate cuts have fallen significantly compared to the start of the year. Europe headed into 2024 assuming that the first interest rate cut would potentially take place as early as in March and that the key interest rate would be lowered to 2.25 per cent by the end of the year. Now, the pricing has changed such that the first cut is expected to take place in June and the interest rate is expected to fall to ca. 2.75–3.00 per cent.

In the USA, Fed Chair Jay Powell held speeches at the House of Representatives and the Senate last week, emphasising that although the time for an interest rate cut is getting nearer, the battle against inflation is not won yet. The US consumer price index, which is much awaited by the markets, will be published on Tuesday this week. It will show whether the drop in inflation is in line with the targets.

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