Market Update Monday 10th April 2023

Analysts observing light and fluctuating trading activity

The primary market indices mostly declined during a week shortened by holidays, with traders observing light and fluctuating trading activity. American markets, along with the majority of markets in the Americas, were closed on Friday due to Good Friday, while Passover began on Wednesday evening. Traders pointed out that investors seemed to take a break following the previous week’s end-of-quarter portfolio adjustments by some institutional investors, which took place before their quarterly public disclosures.

Since markets were closed on Friday, investors could not respond to the Labor Department’s nonfarm payrolls report for March, but other crucial economic releases appeared to influence sentiment. On Monday, the Institute for Supply Management’s (ISM) March factory activity index dropped to its lowest point in nearly three years, reversing a slight increase in February. The ISM’s services sector index, released two days later, showed that the services sector was still growing, but at a significantly slower pace than anticipated.

Indications of a cooling labor market

Recession concerns intensified, and hopes for lower interest rates increased when the Labor Department announced on Tuesday that job openings in February fell more than expected, dropping to 9.9 million, a level last seen in May 2021. The number of people quitting their jobs increased from 3.9 million to 4.0 million. Some economists argue that the number of voluntary job departures is a more reliable indicator of the overall labor market health.

Analysts observed that pessimistic statements from a Federal Reserve official and a prominent bank executive also dampened sentiment. Cleveland Fed President Loretta Mester said at an economic conference that she anticipated the federal funds rate to exceed 5% and remain there, while JPMorgan Chase Chairman and CEO Jamie Dimon cautioned in a letter to shareholders that “the [banking] crisis is not yet over” and that “there will be repercussions from it for years to come.”

European shares increased as fears of a banking crisis subsided. In local currency terms, the pan-European STOXX Europe 600 Index ended the five days through April 6 with a 0.90% gain. Major stock indexes exhibited mixed results.

ECB’s Lagarde, de Guindos, and Lane suggest more rate hikes; others believe rates are approaching their peak

European Central Bank (ECB) President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane indicated that inflationary pressures necessitate additional interest rate increases. Several other policymakers, including Bank of France Governor François Villeroy de Galhau, Bank of Lithuania Governor Gediminas Šimkus, and Bank of Greece Governor Yannis Stournaras, concurred that rates might rise but also stated that they believed rates were nearing their peak.

EU house prices drop for the first time in eight years; producer prices decline for the fifth consecutive month

For the first time since 2015, European Union house prices fell in the fourth quarter of the previous year, decreasing by a record amount, according to Eurostat data. House prices fell by 1.5% sequentially as higher interest rates reduced housing demand. Concurrently, eurozone producer prices fell for the fifth consecutive month and more than expected in February, primarily due to declining energy prices.

BoE’s Pill suggests May rate decision could be a close call

Bank of England (BoE) Chief Economist Huw Pill indicated that policymakers face a tight decision on whether to raise interest rates for the 12th consecutive time in May, signaling that monetary policy tightening in the UK may be nearing its end. Speaking in Geneva, he stated, “On balance, the onus remains on ensuring enough monetary tightening is delivered to see the job through and sustainably return inflation to target.”