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Thu. Apr 25th, 2024

Global markets experienced a downturn on Monday, extending the previous week’s challenging start to the year. The setback was triggered by a US jobs report that exceeded expectations, diminishing hopes for an early reduction in interest rates.

Despite the United States holding interest rates at a two-decade high and inflation remaining above the Federal Reserve’s target, the robust non-farm payrolls data indicated the resilience of the world’s largest economy. This outcome dealt a blow to anticipated normalization of monetary policy in the coming months.

The conclusion of 2023 witnessed a surge in equities as traders speculated on multiple rate cuts in the new year due to declining inflation and a softening labor market. However, the release of minutes from the Federal Reserve’s December meeting revealed a willingness among decision-makers to maintain elevated rates for an extended period to ensure control over prices. Although policymakers signaled a potential 75 basis points cut in the year, markets priced in up to 150 points, exposing investors to potential disappointment.

Barclays economists, including Christian Keller, highlighted the contradictory data signals in the first week of 2024. While solid US jobs growth and a robust economy raised doubts about aggressive Fed rate-cut expectations, cautious Fed minutes added complexity to the situation. A notable slowdown in the key services sector offered some consolation to investors, indicating a potential economic slowdown and providing the Federal Reserve with maneuvering space.

Despite a slight increase in all three main US indexes at the end of the previous week, optimism did not carry over to Asian markets on Monday. A sell-off in tech giants impacted Hong Kong significantly, and Shanghai experienced a substantial retreat. Other major Asian markets, including Sydney, Seoul, Mumbai, Manila, Jakarta, Bangkok, and Wellington, also recorded losses. Tokyo remained closed for a holiday.

In European trading, London and Paris observed declines at the opening, while Frankfurt saw a rise. The focus has now shifted to the upcoming release of US consumer price figures later in the week. Uncertainty prevails in the macroeconomic landscape, as noted by SPI Asset Management’s Stephen Innes, with ongoing concerns about an indeterminate economic environment and the prolonged anticipation of a recession, which may or may not materialize, hinting at the potential for a volatile year ahead.

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