The US dollar is already responding to the Federal Reserve’s announcement last week to pause the interest rate hikes. Although the Fed did increase the interest rate by 25 basis points as expected. The US dollar index fell by 0.4% after the announcement.
The Reserve Bank of Australia and the European Central Bank increased their interest rates by 25 basis points. The MSCI All Country World Index remained flat following the interest rate hikes.
The equities markets show mixed signs of recovery with companies reporting better-than-expected revenue in the first quarter. The Nasdaq made 0.1% gains while the S&P 500 fell by 0.8%. Positive sentiment was reflected in markets across the world. DAX 40 in Germany and Hang Seng in Hong Kong were in recovery mode rising 0.2% and 0.8% respectively. However, England’s FTSE 100 fell by 1.2%.
The equities markets are expected to do even better. Analysts point out that 85% of companies listed on the S&P 500 have published their Q1 reports. Out of these, the EPS of 79% of the companies is better than estimated. FactSet reported that the magnitude of the positive EPS surprises are above their 10-year averages. Relative to analysts' expectations, this is the best performance in terms of revenue the market has seen since Q4 2021.
There is data that reflects uneven growth after lockdowns. China seems to be confirming this observation made by experts. China’s manufacturing sector performed unexpectedly better in April. US manufacturing activity is also showing signs of recovery although it continues to be in contraction.
This week analysts await the release of fresh data and reports. The Bank of Japan is going to have its scheduled meeting on Monday while the German inflation data for April will be released later this week.
The Bank Of England’s decision on interest rates is eagerly awaited. The US producer price index and China’s inflation data will be released on Thursday. The data for new Yuan loans given by China will be released on Friday. All this data should give analysts a clearer picture of where the global economy is headed in Q2, 2023.
The British Pound could make further gains while the Bank of England follows global trends and increases interest rates by 25 basis points. The UK inflation rate continues to be in double digits at 10.1% and the central bank will try to contain it.
