Weekly Market Update (Monday 15th April)
Written and accurate as at: Apr 18, 2024 Current Stats & Facts
Persistent Inflation in the U.S.
U.S. inflation data was released this week, surpassing anticipated predictions. The monthly core inflation reading, which excludes food and energy prices, reported a 4.5% annualized increase over the past three months—the highest level since November 2022, which is significantly above the Federal Reserve's target. This development has considerably impacted interest rate expectations, with a rate cut likely to be seen by June this year. A full rate cut isn't expected until November.
Impact on Bond Markets and Currency Valuations
In response to the stronger-than-expected inflation figures, U.S. Treasury yields spiked, with 2-year yields increasing by 0.15% and the 10-year yields climbing 13 basis points to reach 4.5%, the highest since last November. However, equity markets displayed an optimistic outlook, betting on eventual rate cuts and sustained economic growth that may elevate earning forecasts above current projections.
Rates back home - RBA
In local markets, expectations for rate adjustments by the Reserve Bank of Australia have been deferred, with the first anticipated rate cut now moved from November to December 2023. As rates are expected to remain higher for longer, the U.S. dollar strengthened against a basket of currencies, contributing to a 1.5% decline in the Australian dollar over the week and a 5.2% drop year-to-date against the U.S. dollar.
Corporate Earnings
Looking ahead, attention is likely to shift towards U.S. corporate earnings, as the Q1 profit season begins. Despite a generally optimistic start to the year, analysts have slightly lowered their earnings estimates for 2024. Additionally, The S&P 500 is trading at 21 times the anticipated earnings for 2024, reflecting expectations of an 11-12% earnings this year and a 13-14% growth in earnings per share for 2025.
Global Movement
Internationally, Chinese telecom companies received instruction to eliminate the use of foreign-manufactured chips by 2027, reflecting ongoing tension and the strategic breakdown of technological ties between the U.S. and China. This directive is particularly impactful for U.S. chipmakers, with Intel experiencing a 5.2% decrease in stock value last Friday due to the significant revenue it derives from the Chinese market.
This also had macroeconomic influence as there was a 0.4% month-on-month rise in the U.S. headline Consumer Price Index (CPI), which slightly exceeded expectations and pushed the annualized headline inflation rate up for the second consecutive month.
Meanwhile, Australian consumer sentiment declined, influenced by pessimistic views on economic conditions despite a marginal improvement in perceptions regarding personal financial situations.
In Europe, the European Central Bank signalled potential rate cuts as early as June amidst a backdrop of economic stagnation and softening inflation rates.
ASX 200 Stocks
In the ASX 200, notable movements included gains in sectors like mining and healthcare, while other areas faced declines amid the broader market volatility.