2024 Weekly Update

Market update

The S&P 500 closed the week at 5,234.18, +2.29% higher. The Dow Jones closed at 39,475.90, +1.97%, with the Nasdaq higher by +2.85%. The volatility index VIX closed the week at 13.06 down from 14.41. The Euro Stoxx 600 rose +0.24%.

The 10-year UST closed at 4.20% down from 4.31% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -119bps. US Corporate Bond spreads: Investment Grade tightened 3bps at 158bps and High Yield tightened 15bps at 326bps. German 10-year Bunds yield closed at +2.32% down from +2.44% a week before. In Europe, Corporate Investment Grade spreads widened 2bps at 126bps and High Yield spreads widened 15bps to 346bps.

The US Dollar Index (DXY) appreciated +0.96% last week and closed at 104.43. The Euro closed at 1.0808 (-0.74%); the Yen depreciated -1.59%, closing at 151.41 and the Swiss Franc depreciated -1.55%, closing at 0.8975. Gold closed at $2,165.44 appreciating +0.44%. Oil was mixed, Brent closed at $85.43 (+0.11%) and WTI at $80.63 (-0.51%).

Macroeconomy

Bank of Japan

After 8 years of negative base rates (most likely, longest run ever seen for any country), the BoJ hiked rates for a first time in 17 years. They hiked rates from -0.1% to a range of 0-0.1%. They also scrapped Yield Curve Control and ended ETF and REIT purchases, but these programs had been dormant of late. They are continuing JGB purchases at the same rate for now, but the fund supplied through the Loan Support Program (with a current balance of JPY81 trillion yen) will decrease going forward given the conditions for the program have become stricter. As a result, the monetary base and the BoJ's balance sheet will decline. Forward guidance is a bit dovish. In the statement, the bank anticipates that accommodative financial conditions will be maintained for the time being given the current outlook for economic activity and prices. Later in the week, Japanese CPI climbed to +2.8% y-o-y in February (vs. +2.2% in January; +2.9% market consensus), accelerating at the quickest pace in four months with the Core CPI inflation growing at an annualized +2.8% in February as expected, picking up from the +2.0% annualized pace seen in January. Core, core was a tenth below expectations at 3.2%.

US Fed

The Fed kept reference rates on hold (at 5.25-5.50%). More importantly, the dot plot showed the median 2024 dot unchanged at three cuts this year. This came even as 2024’s economic projections were revised higher, with real GDP growth revised up from 1.4% to 2.1%, core PCE inflation up two-tenths to 2.6%, and unemployment a tenth lower to 4.0%. In more details, the statement was little changed as the FOMC continued to see that “it will likely be appropriate to begin dialing back policy restraint at some point this year” while wanting to gain “greater confidence that inflation is moving sustainably toward 2%”. Powell’s press conference also erred on the dovish side, with his comments notably suggesting that the upside inflation data for January and February did not alter the Fed’s baseline, with the inflation story “essentially the same”. He also mentioned a couple of times that unexpected labor market weakening could warrant a policy response (though the FOMC did not see this currently), while expressing no concern about the ongoing easing in financial conditions. When asked about rate cut timing, Powell made no effort to rule out the possibility of a May move, saying the FOMC “didn't make any decisions about future meetings”. On the balance sheet side, Powell indicated that a decision on slowing the pace of QT (Quantitative Tightening) would come “fairly soon”. He emphasized that slowing QT did not equate to stopping it, noting that moving to a slower run-off pace could allow for a greater reduction in the balance sheet over time by reducing the risk of liquidity problems emerging. On Fedspeak, Fed Bank of Atlanta President Bostic said he now projects just one interest rate cut this year, adding that reduction will likely happen later in the year than he previously expected on the back of persisting inflation and more resilient economy.

Swiss National Bank

The SNB surprised the market with a 25bps policy rate cut to 1.50%. It came in the context of Swiss CPI at just +1.2%, and core CPI is at 1.1%, so they don’t have the problem of above-target inflation (unlike most other developed economies). But the decision still came as a surprise, with the consensus of economists expecting them to remain on hold. In its monetary policy statement, the SNB argued that the decision to ease was made possible “because the fight against inflation over the past two-and-a-half-years has been effective”. The SNB also considered “the appreciation of the Swiss franc in real terms over the past year”, a sign of growing concerns over Switzerland’s growth outlook. The biggest surprise came from the very large downward revisions to the SNB’s inflation forecasts. The medium-term inflation forecast point (to end-2026) was revised to 1.1%, compared with 1.6% three months ago, on the back of “lower second-round effects”. The SNB’s definition of price stability is “less than 2%”.

Bank of England

The BoE kept their policy rate at 5.25% as expected. Importantly, the vote split was now an 8-1 decision to keep rates on hold, with one member preferring a 25bps cut. That meant it was the first meeting in two-and-a-half years with no member voting for a rate hike, so that was another dovish milestone. In the statement, they stuck to their language from February that “Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term”. Governor Andrew Bailey said that the BoE was “not yet at the point to cut rates”. He was more explicit in an interview, saying that (several) rate cuts are “in play”, adding that “credibility can also be affected by waiting too long”. The change in the MPC (Monetary Policy Committee) vote and guidance were backed by more encouraging data. CPI inflation surprised to the downside, falling to 3.4% in February, and is expected to ease further “to slightly below the 2% target in Q2”. The MPC stressed that the labor market continued to ease, supporting a further decline in “most indicators of pay growth”. The measures announced in the UK government’s Spring Budget were described as a net positive.

What to watch

• Monday: US new home sales (Feb.)
• Tuesday: US durable goods orders (Feb.)
• Wednesday: Sweden Riksbank rates decision (Mar.); Spain flash HICP (Mar.); Euro area: European Commission surveys (Mar.)
• Thursday: Euro area M3 and credit data (Feb.); US GDP final (Q4), Univ. of Michigan survey final (Mar.); Japan: Tokyo CPI (Mar.)
• Friday: Japan: CPI (July); Euro area flash HICP (Mar.); US: core PCE (Feb.)