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Fed speak upsets markets

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 5 April 2024.

| 7 min read

Markets were concerned by the hawkish tone from some members of the Federal Reserve, hitting equity markets. Minneapolis Federal Reserve President Neel Kashkari and Chicago Federal Reserve president Austan Goolsbee both raised the prospect of fewer interest rate cuts this year than the market was expecting. Traders are waiting for the US jobs report later on Friday after weekly unemployment claims topped estimates. This is a key data point for the Federal Reserve.

Oil prices moved higher after Ukrainian attacks on Russian energy facilities and escalating conflict in the Middle East. The Brent crude benchmark moved above $90 a barrel for the first time since October.

Over the week, the blue-chip FTSE 100 index was -0.4% by mid-session on Friday, with the more UK-focused FTSE 250 trading -0.7%.

Economics

UK house prices fell 1% in March from February, marking their first fall after five consecutive monthly rises. Economists had expected a slight increase. Mortgage lender Halifax said the fall showed that rising borrowing costs “continue to be a challenge” to buyers and that prices had shown surprising resilience in previous months. However, UK mortgage approvals beat expectations in February to hit their highest in 17 months, according to the Bank of England.

New applications for US unemployment aid jumped to their highest level in two months in late March. The data came ahead of the important official jobs report later on Friday, which the Federal reserve keenly watches. Initial jobless claims rose to 221,000 in the week to March 30 from a revised 212,000 in the previous week, the labour department said. Economists expected a smaller increase to 214,000, though these levels remain low by historical standards in a reflection of the resilient US labour market.

Federal Reserve Chair Jerome Powell said policymakers will wait for clearer signs of inflation slowing before any interest rate cuts emerge.

Federal Reserve Chair Jerome Powell said policymakers will wait for clearer signs of inflation slowing before any interest rate cuts emerge. However, he said that the recent, hotter readings on inflation don’t “materially change” the overall view and that it will likely be appropriate to start cutting later in the year. However, other Federal Reserve members did not sound so dovish in speeches. Minneapolis Federal Reserve President Neel Kashkari said he had planned for two interest rate cuts this year, but if US inflation continued to move “sideways, then that would make me question whether we need to do those rate cuts at all”. At a separate event, Chicago Federal Reserve president Austan Goolsbee said that although he thinks housing inflation will come down, if it did not, it would jeopardise the central bank’s ability to reach its overall 2% inflation target.

Bank of Japan Governor Kazuo Ueda said inflation would likely accelerate from "summer towards autumn" as bumper pay hikes push up prices, his strongest hint yet that another rate hike was possible in the coming months. Japan’s central bank ended eight years of negative interest rates last month, in an overhaul of one of the world’s most aggressive monetary easing programmes that sought to encourage bank lending and spur demand. In its first interest rate hike in 17 years, the BoJ said it was lifting its short-term policy rate from -0.1% to “between zero and 0.1%”.

Geopolitics

US Treasury Secretary Janet Yellen suggested that the US will retain an option to protect new industrial sectors against China, commenting on the huge state investments made in areas like clean energy. That follows President Joe Biden’s comments to have raised China’s “unfair trade policies and non-market economic practices” with Chinese Premier Xi Jinping earlier in the week.

Senior US officials plan to visit the Netherlands next week to pressure the Dutch government to toughen its China chip equipment curbs, Bloomberg reported US Under Secretary of Commerce for Industry and Security Alan Estevez, who’s responsible for implementing export controls, will be part of the delegation.

Share prices of major semiconductor companies have been doing extremely well in 2024 so far, as the digital revolution moves up a gear. Chips with absolutely everything.

As the North Atlantic Treaty Organisation, a military alliance of 32 member states, celebrates it’s 75th anniversary of its formation, what does the future hold for the North Atlantic Alliance?

Environmental, social, and governance (ESG)

Sales of electric cars are failing to keep up with the wider market. Some 15.2% of new cars registered in March were battery electric vehicles, the Society of Motor Manufacturers and Traders (SMMT) said, down from 16.2% a year earlier. While registrations of electric cars to company fleet buyers increased, sales to individuals fell.

The US Army Corps of Engineers said it expected to open a new channel to the Port of Baltimore by the end of April, freeing up commercial shipping blocked by a collapsed bridge, and then restore port access to full capacity by the end of May. The main channel has been blocked by wreckage since the fully loaded container ship Dali lost power and rammed into a support column of the Francis Scott Key Bridge on 26 March.

Company news

  • AstraZeneca reported successful trial results for one of its top cancer drugs, in a boost to the drug maker’s ambitions for its medication to be a treatment option for more than half of lung cancer patients by 2030. The company’s immunotherapy drug Imfinzi helped patients with limited-stage small cell lung cancer survive for longer.
  • Shell lifted its production guidance for the first quarter and said it expects an increase in margins. Within the integrated gas division, Shell said that trading and optimisation results are expected to be "strong, but significantly lower than an exceptional fourth quarter in 2023".
  • DS Smith, the packaging group at the centre of a bidding war between UK-listed Mondi and US firm International Paper, has extended the so-called “put-up-or-shut-up” deadline for the former to make a firm offer.
  • Tesla reported a sharp fall in worldwide sales amid increased competition and slowing demand for electric vehicles. The carmaker said it delivered 386,810 vehicles during the first quarter of the year - down nearly 9% on the 423,000 it shipped from January to March last year. This was the first year-on-year quarterly sales decline for the company in nearly four years. Tesla said the fall was "partly" due to disruption to shipping in the Red Sea region and an arson attack at its gigafactory in Berlin.
  • Korea’s Samsung Electronics expects to post a 10-fold increase in first-quarter operating profit, as memory chip prices staged a strong recovery after the industry’s worst downturn in decades last year.

Please note: This article was released prior to SDR and thus the information may not be in line with the Anti-Greenwashing rule but contextually is appropriate for the time it was written.

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Fed speak upsets markets

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