US Equities Edge Higher Ahead of Key Federal Reserve Meeting

Global markets were mixed last week as investors took stock ahead of this week’s Federal Reserve (Fed) monetary policy meeting. And whilst an additional 25 basis point (bp) rate hike has long been expected, it is the guidance on where the Fed will go from here that investors are most interested in. US treasury yields were somewhat volatile with the 10-year concluding the week 14bps lower at 3.43% with growing concerns relating to the US debt ceiling and a potential imminent breach also weighing on sentiment. The S&P500 added +0.9% despite the ongoing issues in the banking sector, in particular embattled First Republic Bank which announced significant deposit outflows during Q1’23 on Tuesday before ultimately being taken over by JP Morgan[1]. It is the third US banking failure since March following Silicon Valley Bank and Signature Bank.

Elsewhere, the FTSE100 retreated by -0.6% whilst in Europe, the MSCI ex UK index ended the week -0.8% lower on growing concerns relating to the state of the economy. As for the major Asian indices, the Nikkei 225 in Japan rose by +1.0% with sentiment buoyed by the Bank of Japan which held off implementing interest rate or yield curve control changes at its policy meeting. A relaxation of border controls ahead of China’s Golden Week holidays also provided support[2] on an expected increase in foreign travel into the country. Regarding China’s equity indices, the Shanghai Composite added +0.7% on a reaffirmation of the government’s fiscal and monetary support for the economy.

Moving to commodities, oil prices slipped once again with Brent Crude falling by -2.6%, a second weekly fall despite a late rally on Friday. April was a fourth straight month of decline for Brent which has struggled due to concerns relating to the demand outlook. Copper prices also struggled amid demand concerns, the metal falling by -2.3% t0 $8,577 a tonne. Gold was also volatile although the it did manage to post a weekly gain of +0.6% to $1,990 an ounce.[3]

Week Ahead

As noted above, all focus this week will be on the Federal Reserve which hosts its latest monetary policy meeting on Wednesday. Expectations are for a 25bp increase in its base interest rate to a range of 5.00-5.25% whilst the post meeting press conference and press release will be closely scrutinised for any guidance relating to possible future action. In terms of US data, Friday’s labour market report is expected to reveal a slowdown in the pace of job creation whilst the headline unemployment rate is forecast to have risen modestly to 3.6%. Purchasing Manager Index (PMI’s) equivalents from the Institute for Supply Management (ISM) are also published with the manufacturing sector figure having already been released on Monday. Moving to Europe, the European Central Bank (ECB) also holds a monetary policy meeting this week whilst there are a number of key macro datapoints to monitor including CPI inflation, unemployment and retail sales. In addition, final PMI’s covering April are published both on the Continent, the UK and in China. Official Chinese government PMI’s were published on Monday whilst equivalent private figures from S&P Global are due later in the week[4].

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[1] JPMorgan Chase & Co, 02/05/23

[2] T. Rowe Price, 02/05/23

[3] Refinitiv, 02/05/23

[4] Forex Factory, 02/05/23

SJP Approved 02/05/23