Macro Developments
US Mixed Economic Signals: Softening Data Amidst Healthy GDP Estimates
Retail sales and industrial production fell in January, prompting a softening of US statistics.
The original 1Q GDP estimates continued to progress at a robust rate. Timelier survey results
were also muted; in February, the widely followed ISM Manufacturing PMI fell to 47.8. The
jobless rate remained low at 3.7%, the labour market remained tight, and headline inflation
decreased further, to 3.1% in January. Several FOMC committee members restated the
“higher for longer” line of thinking. The amount of rate reduction expected in certain regions
since the beginning of the year was more than halved as money markets tempered
expectations for 2024 rate decreases. A US government shutdown was averted momentarily
by the tardy agreement on a budget measure.
Europe; Rebounding Retail and PMIs, Mixed Inflation Trends, and Monetary
Policy Expectations
While the UK entered a technical recession at the end of 2023, core retail sales in the country
increased by 3.2% in January, which is encouraging. UK´s series increased at an even quicker
rate in February, and the eurozone series climbed higher (albeit staying below the neutral 50-
mark) in the Composite PMIs. Core inflation (3.1%) and headline inflation (2.6%) for the euro
region fell in February. UK’s headline and core inflation rates remained steady in January at 4%
and 5.1%, respectively. However, a further cut to Ofgem’s energy price ceiling (from April 1st)
suggests that disinflation will continue in the near future. The 4Q saw a 0.3% expansion in the
Swiss economy, bringing the country’s annual growth to 0.7%. Additionally, inflation stayed low,
with the headline rate falling to 1.3%. The BoE and Swiss National Bank had three price-in
decreases, while the ECB had four. Regarding budgetary policy, the EU approved a €50 billion
aid package for Ukraine.
Asia Economic Update: Japan in Recession, China’s PMIs, and Rate Cuts
Japan entered a technical recession. Although services appeared slightly positive,
manufacturing in China shrank somewhat in February, as shown by the NBS PMIs. In January, it
saw a further decline in its headline inflation rate to -0.8% YoY, which is close to deflation. The
five-year loan prime rate in China, which is a mortgage-linked lending rate, was lowered by 25
basis points to 3.95% to ease the persistent problems in the real estate industry.
Market Impact
Government bonds fell by 0.5% in February, despite a 4.3% increase in global stocks. Global
stock indexes reached all-time highs. Returns by region and industry, even while growth stocks
kept driving the market upward. The Magnificent Seven’s (Alphabet, Amazon, Apple, Meta,
Microsoft, Nvidia, and Tesla) growth looked disjointed; in particular, Nvidia’s 60% increase in
2024 stands in sharp contrast to Tesla’s. US´s earnings season performed better than expected;
the annual number reached a respectable 0.9%, with Q4 profits growth rate of 4%. The rates on
10-year government bonds in the US (4.3%), the UK (4.2%), and Germany (2.5%) reached all-
time highs in the fixed income market. Bitcoin soared and nearly reached all-time highs of over
$60,000.
Our Expectations
Fixed income markets anticipate that the US Fed will maintain current interest rates after its
next meeting on March 20. As of right now, markets anticipate three to four cuts by December
2024. This suggests that short-term rates will close the year at somewhat more than 4%.
This Economic Outlook report was prepared by the N PrimePartners Capital
Investment team.
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