Macro Developments
US Recovery: Modest Improvements Amidst Economic Indicators and Political Developments
After a dismal January, February saw a modest improvement in both retail sales and industrial
production. For the first time since 2022, the ISM manufacturing index showed growth. Even
though it is still at historically low levels, the jobless rate increased in February. Globally,
estimates for the U.S. GDP in the 1Q were 3% YoY, which was higher than the norm. The
services sector was the only factor driving the 3.2% YoY increase in total inflation in the
United States, while core inflation continued to fall and reached 3.8%. For the fifth
consecutive meeting, the FED maintained its interest rate goal range of 5.25%–5.50%. In
addition, they reiterated its three rate cuts for 2024 in its updated interest rate predictions.
In the political arena, it has been confirmed that Biden and Trump will run for president once
more on November 5th, following the end of the major primary procedures in the US. During
his State of the Union speech, Biden declared that if re-elected, he would impose more taxes
on corporations and a tax on billionaires.
Europe’s Economic Divergence: Mixed Signals and Monetary Moves
The slowing of economic activity continued in Europe. March saw a continuation of the
divergence between the eurozone’s manufacturing and services PMI indexes. Regarding the
former, the numbers were very low. Conversely, the UK’s numbers were somewhat better,
with the GDP growing marginally in January and the composite PMI staying in expansionary zone
during the 1Q. Europe’s inflation rates kept going down as the labor market held steady. The
ECB maintained its deposit rate at 4%, while the BoE maintained its reference rate at 5.25%.
Lagarde hinted that the easing cycle would start in June. Unexpectedly, interest rates were
lowered by 25 basis points, to 1.50%, by the Swiss National Bank, the first central bank in a
developed market to do so.
Asia’s Economic Rebound: Signs of Recovery Amidst Regional Challenges
Increased 4Q GDP numbers signaled the correction of Japan’s technical recession, while the
Tankan manufacturing survey pointed to a strong 1Q. The Bank of Japan reversed eight years
of zero interest rates in the face of mounting evidence of robust wage growth. Despite the
ongoing downturn in the country’s real estate market, China’s contrasting early-year numbers
were solid, and the country’s total inflation rate was positive because to high demand during
the Lunar New Year period. China announced a five percent GDP growth target for 2024 at the
National People’s Congress.
Market Impact
Stock indexes kept rising, as worldwide markets enjoyed their longest positive monthly run since
2021. Due to the rise in commodity prices, the best-performing industries were energy and
materials. Oil prices increased by about 5% to $87 per barrel. In fixed income, the rates on
longer-term government bonds declined, and at the end of the quarter, the majority of
sovereign bond yields were still low. Except for the Swiss franc, which kept falling after the Swiss
National Bank imposed easing measures, the currency markets were mostly unchanged overall.
Both Bitcoin and gold hit record highs, with the former rising beyond $2,200 and the latter
momentarily reaching $70,000.
Our Expectations
Our base assumption for 2024 still involves an economic soft landing. We believe central banks
will proceed with rate decreases by the end of the 2Q as a result of the ongoing decline in
inflation. Key elections are scheduled in more than half of the world in the upcoming months,
which might lead to an increase in political and policy concerns.
This Economic Outlook report was prepared by the N PrimePartners Capital
Investment team.
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