Weekly Overview of Global Markets

Market Review and Outlook

Weekly performance of major asset classes: Hong Kong stocks> Crude Oil> US dollars> US stocks> Gold> US bonds

Stocks: Investors showed optimism towards the technology and artificial intelligence sectors last week, with Nvidia's release of its latest AI chip series and Micron Technology's strong earnings surprising the market. On Wednesday, the Fed's dot plot indicated that there will be no change in the predicted three rate cuts this year, with interest cuts of 0.75% expected. The first rate cut is likely to take place in June. Additionally, the Fed significantly raised its forecast for 2024 economic growth and indicated that it will soon slow down the balance sheet reduction or quantitative tightening (QT). The Fed's unexpected dovish stance resulted in a boost to the stock market, with the market rising sharply on Thursday and setting new historical highs for two consecutive trading days. Small and mid-cap stocks performed better than the broader market, and cyclicals such as the industrial and financial sectors had strong performances.

Bonds: US Treasury yields have been rising steadily since March, with the 10-year yield currently surpassing 4.3%, a significant increase from the yearly low of around 3.9%. The rise in yields can be attributed to some extent to market pessimism about the Fed's rate cuts, and it may also be related to the Bank of Japan's recent decision to raise interest rates. However, after the Fed's meeting, the bond market responded positively, with yields falling from 4.3% to around 4.27%. This decline in yields also helped to support better sentiment in both the stock and bond markets.

Gold: After optimistic sentiment from the Fed meeting, gold prices surged on Thursday, breaking through the $2,200 mark and setting a new high. The expectation of looser US monetary policy, which the Fed has confirmed, is one of the main reasons behind the rise in gold prices. This current upward trend in gold prices began in mid-February and has likely been bolstered by long-term factors such as increasing geopolitical risks and central bank buying. In March, gold prices hit new highs five times. However, on Friday, gold prices retreated from their high largely due to a sudden surge in the US dollar. In the long term, the Fed is expected to cut rates three times this year, which may limit the downside of gold.

Crude oil: On Thursday, crude oil futures experienced a slight decline following the UN's call for a ceasefire in Gaza, continuing to consolidate after previously falling from a five-month high. Despite this, market analysts remain optimistic about the outlook for oil fundamentals, citing escalating geopolitical tensions, stable demand growth, and the extension of OPEC+ production cuts until at least the end of the second quarter as reasons for their optimism.

Note: The weekly performance of major asset classes is ranked based on the weekly change in the asset class as shown in the table above, with ">" indicating the ranking from highest to lowest. US bonds are ranked based on the change in futures prices. Past returns do not guarantee future returns.

Data source: Bloomberg. Date as of March 22nd, 2024

Weekly Hot Topic

Central banks around the world have released important information one after another

1. The Fed delivered a positive surprise to the market.

During Wednesday's rate meeting, the Fed kept interest rates unchanged as expected, but delivered a dovish stance with several key messages:

Firstly, the Fed significantly raised its forecast for 2024 economic growth due to an improvement in labor supply, increasing the possibility of a "soft landing."

Secondly, despite facing unexpected inflation data, Fed Chairman Jerome Powell surprised the market by not adjusting rate cut expectations. Instead, he showed a dovish attitude and emphasized that inflation would gradually decline to 2% on a bumpy road. Powell also stated that the federal funds rate is expected to gradually fall to around 3.1% by 2026, indicating that this year may be the beginning of a multi-year rate cut cycle.

Thirdly, the dot plot shows that the expectation of three rate cuts this year remains unchanged, with a rate cut of 0.75%. The market expects rate cuts to occur at the June, September, and December meetings.

Lastly, officials at the Fed's asset-liability table discussed balance sheet reduction, with Powell noting that the Fed is considering slowing the pace of balance sheet shrinkage. This has intensified the dovish tendency of the Fed's information this week.

2. Policy rate decisions from the Swiss and UK central banks.

Along with the Fed and BOJ, the Swiss National Bank and Bank of England also made policy rate decisions this week. On Thursday, the Swiss National Bank unexpectedly lowered its policy rate by 0.25%, citing the effectiveness of the "inflation struggle" over the past 2.5 years as the reason for the rate cut. Notably, Switzerland is the first major global central bank to begin a rate-cutting cycle ahead of the Fed and Bank of Canada.

Meanwhile, the Bank of England maintained its policy rate at 5.25%. However, investors anticipate that the Bank of England will gradually reduce interest rates starting in August.

Overall, a large majority of developed-market central banks are on a similar path as the Fed, likely heading toward rate cuts sometime this year, including the European Central Bank (ECB), Bank of Canada (BoC), and Bank of England (BOE).

3. Japan ended negative interest rates with first rate hike since 2007

Last Tuesday, the Bank of Japan announced its first rate hike since 2007, raising the policy rate from -0.1% to a range of 0%-0.1%. This marked the end of the world's only negative interest rate system, and Japan's first rate hike in 17 years.

Negative interest rates were introduced in response to the bursting of Japan's stock and real estate bubbles in the 1990s, which led to a decline in the economy and deflation. To stimulate the economy, the Bank of Japan began a series of interest rate cuts, and in 2016, introduced negative interest rates.

This negative interest rate was not aimed at ordinary depositors' deposits but occurs between commercial banks and central banks. Due to risk prevention, some of the deposits in commercial banks need to be handed over to the central bank, which is called a reserve requirement. The central bank imposes a negative interest rate on these deposits to encourage commercial banks to use the money to stimulate the real economy instead of keeping it in a "safe."

Japan's current inflation rate has been above 2% for 22 consecutive months. At the same time, with corporate wage increases exceeding expectations, residents' purchasing power has also risen again, further driving up prices. In order to control inflation, the Bank of Japan decided to raise interest rates by 0.1% and reiterated at the post-meeting press conference that it will further raise interest rates gradually.

Despite expectations that the rate hike would lead to a decline, the Japanese stock market rose slightly, with the Nikkei 225 once again breaking through 40,000 points. The muted reaction reflects the BOJ's preparation of markets for this week's decision and commitment to "accommodative financial conditions".

The Bank of Japan's decision this week to raise interest rates should serve as an important step toward sound management of Japan's economy. Looking ahead, Japan's commercial banks may see a reversal in the trend of foreign investors borrowing yen to buy overseas assets, as funds are more likely to flow back to Japan after the rate hike.

Important Events Outlook for This Week

Note: The Upcoming Economic Calendar is selected from moomoo Financial Calendar.

Inflation and employment data are the focus

According to the economic projections released by the Fed on Wednesday, officials are optimistic that the economy will avoid a recession and that the high inflation seen earlier this year has already started to ease. If the projections are accurate, it suggests that the US economy will recover from high inflation without experiencing a recession or a significant increase in unemployment.

The Fed will keep a close eye on the core PCE price index this week. The CPI data released in February showed signs of rising inflation in the US, and the market will once again be looking to the PCE index to confirm this trend. The data will be released on Good Friday when the markets are closed, but given the previously reported consumer and producer prices, it is expected that the PCE will show a strong monthly gain. However, this may not surprise the markets too much, especially after Fed Chair Powell downplayed the hotter inflation readings seen in January and February as temporary.