• Weekly Overview of Global Markets

Market Review and Outlook

Weekly performance of major asset classes: Gold> US Dollar>US Bonds > US Stocks > HK Stocks > Crude Oil

Stocks: On Thursday, the S&P 500 index recorded its fifth consecutive day of declines, which were driven by a combination of factors such as strong retail sales reports, geopolitical tensions, concerns about inflation, and worries over interest rate cuts. The technology sector struggled the most last week, as TSMC's (NYSE: TSM) cautious guidance created uncertainty about future semiconductor demand. The previously high-performing artificial intelligence sector also experienced a notable pullback recently. As a result, investors will likely keep a close eye on the financial data from leading AI company Nvidia (NASDAQ: NVDA), as it could provide insight into the sector's future trends.

Bonds: Last week, Treasury yields continued to climb higher, with 2-year yields hovering around 5%. The 10-year Treasury yield, under the combined impact of rising inflation, strong economic resilience, and the Federal Reserve's revised expectations for interest rate cuts, reached a remarkable 4.70% this month, the highest level since early November 2023. Federal Reserve Chairman Powell recently acknowledged that the latest economic data has not strengthened people's confidence in inflation approaching the 2% target anytime soon, which has exacerbated concerns. Ales Koutny, head of international rates at Vanguard, has warned that the yield threshold of over 4.75% could trigger significant sell-offs, which could potentially push rates to or above 5%. As a result, many market participants are viewing the current situation as a dangerous area and are closely monitoring any further developments.

Crude Oil: Oil prices have been subject to significant fluctuations recently, driven by factors such as geopolitical tensions, OPEC production cuts, and increased betting on the oil options market. WTI prices fell from last week's high but stabilized around $83 on Friday. However, Citigroup analysts believe that global oil inventories are steadily increasing, which should lead to a decline in oil prices. Therefore, the strong recent trend in oil prices is contrary to expectations.

US Dollar: Several Federal Reserve officials have recently conveyed hawkish messages, emphasizing that US inflation is too high and stating that they do not currently believe it is necessary to immediately lower interest rates. This stance has caused the US dollar to soar to around 106, reaching a new high for this year. FX Street suggests that central banks around the world have expressed dissatisfaction with the strong US dollar, causing traders to temporarily take profits. However, by June or summer, larger interest rate differentials are still expected to favor the US dollar and push the DXY index higher again.

Gold: As tensions in the Middle East continue to intensify, gold's safe-haven properties have been boosted, driving up gold prices. As of last Friday, the price of gold surged to nearly $2,410 per troy ounce. The current sentiment for gold investment is still high, mainly due to increased central bank purchases, geopolitical risks, the potential for the Federal Reserve to cut interest rates, and Western investors seeking to hedge their portfolios with gold. VanEck portfolio managers believe that while gold prices are high, investment demand has not yet reached its peak. As more investors seek to increase protection and diversification, gold and gold stocks are expected to benefit further.

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 April 19th, 2024

• Weekly Hot Topic

What is the Progress of Global Interest Rate Cuts?

1. Traders Have Bet on the Federal Reserve to Cut Rates Early

The current sentiment of investors and analysts is that the Federal Reserve's interest rate cut measures will likely be delayed again, but traders in the interest rate futures market are bucking the trend. They are heavily betting on the Fed cutting rates sooner rather than later by buying futures contracts for the secured overnight financing rate that expire in December 2024 and selling contracts that expire in December 2025. These traders expect the December 2024 contract to outperform the December 2025 contract, with the SOFR spread trading volume setting a record last Tuesday.

If the Federal Reserve takes aggressive monetary easing actions before the November presidential election and cuts rates more than the expected 40 basis points this year, these bets could bring significant returns.

2. The European Central Bank Is Likely to Cut Rates in June

Meanwhile, the European Central Bank is expected to follow the Swiss National Bank in cutting interest rates. The European Central Bank held its interest rate steady at a historical high level for the fifth consecutive time at its April meeting but hinted that it may soon start cutting rates due to the cooling of inflation. François Villeroy de Galhau, a decision-maker at the European Central Bank, stated that due to increasing confidence in the path of inflation decline in the Eurozone, the bank should cut rates in June unless there are significant unexpected events to avoid lagging behind the inflation curve.

3. Clues of Interest Rate Cuts from the International Monetary Fund

The International Monetary Fund (IMF) recently released its "World Economic Outlook" report, providing investors with clear insights into expected interest rate cuts. The report can be divided into three key points:

1. The global economic growth rate is slowing down: The IMF forecasts that The global economic growth rate will reach 3.2% this year, slightly higher than the January estimate of 3.1%. Although global economic growth is expected to continue expanding steadily this and next year, its growth rate is still weak compared to historical standards, and the medium-term outlook is the lowest in decades. The US is expected to have higher growth rates than other developed countries, with the IMF raising its growth expectations to 2.7% this year, higher than the Federal Reserve's expected 2.1%. However, next year's growth rate is predicted to slow to 1.9% due to gradual fiscal tightening and a weak job market. The Eurozone's recovery is expected to be much slower, with the IMF predicting a growth rate of 0.8% this year and 1.5% in 2025, reflecting the long-term impact of high energy prices and weak productivity growth.

2. Global inflation is declining: The IMF predicts that global inflation will decrease from 6.8% last year to 5.9% this year and 4.5% next year. The decline in core inflation, the rise in interest rates, weak job markets, and slower energy price increases are the major factors behind this trend. However, the report warns that any escalation of the Middle East conflict could change the situation's development trajectory.

3. Global central banks to start implementing the rate-cutting cycle: The economic slowdown is a significant factor that motivates central banks to cut interest rates, while the ongoing decline in global inflation is another critical factor that prompts rate cuts. However, the IMF's outlook on rate cuts may vary across different regions around the world. Differences in inflation and growth rates between developed countries such as the US, Europe, and others may cause central banks in these regions to follow different schedules in cutting rates. The European Central Bank is expected to be the first major central bank to initiate rate cuts in June, while the situation in the US remains uncertain due to higher-than-expected inflation data and unexpectedly robust economic performance, causing investors to delay their expectations for rate cuts. Nevertheless, the IMF predicts that the Fed's policy rate will drop from the current range of 5.25% - 5.5% to 4.5% - 4.75% by Q4 of this year, indicating three rate cuts. This estimate exceeds investors' expectations that there will only be two rate cuts.

• Important Events Outlook for This Week

2024 Q1 GDP

Market attention will be focused on the Q1 GDP release on April 25th. Economists predict an annualized quarter-over-quarter growth of 2%, which is a slight decrease from the previous quarter's 3.4% but still represents healthy economic growth. Recently, we have seen a series of robust economic data, which may support healthy and steady growth in Q1 GDP figures.