The Fed's No Landing Scenario May Dominate Global Investor Sentiment

Barry Adams
03 Apr, 2024
New York City

Market indexes on Wall Street lacked direction as investors debated the rate outlook and the Fed's action. 

Market participants turned cautious amid the growing realization that the Federal Reserve may wait longer before lowering rates after a string of economic reports showed a resilient economy and a healthy job market. 

The S&P 500 index and the Nasdaq Composite pulled higher after trading around flatline in early hours as investors dialed back rate-cut expectations amid stronger-than-expected manufacturing and jobs market data following a sticky inflation report in the previous week. 

Despite eleven rate cuts over the last two years, inflation has moderated but stayed above the Fed's preferred target rate of 2%. 

Moreover, policymakers may keep interest rates unrevised because of resilient economic conditions and a moderating but healthy labor market. 

U.S. Treasury yields held steady and approached a five-month high after investors walked away from rate-cut expectations. 

The private sector added more than expected jobs in March, according to the latest monthly update released by payroll processing firm ADP on Wednesday morning. 

Companies expanded payrolls by 184,000 in March, faster than the revised 155,000 increase in February. 

However, the ADP data series is highly volatile and subject to severe revisions. 

 

U.S. Indexes and Yields

The S&P 500 index increased 0.4% to 5,226.45, and the Nasdaq Composite fell 0.6% to 16,332.38. 

The yield on 2-year Treasury notes hovered at 4.72%, 10-year Treasury notes inched up to 4.39%, and 30-year Treasury bonds edged up to 4.53%.

WTI crude oil increased $0.41 to $85.85 a barrel, and natural gas prices increased 2 cents to $1.87 a thermal unit.

Gold decreased by $4.84 to $2,284.28 an ounce, and silver rose 6 cents to $26.21. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.75.

 

U.S. Stock Movers

Intel declined 5.2% to $41.65 after the advanced semiconductor maker reported a wider loss in its foundry operation. 

Operating loss in 2023 expanded to $7.0 billion from $5.2 billion in 2022, after sales in 2023 plunged to $18.9 billion from $27.5 billion in the previous year. 

Dave & Buster's gained 6.3% to $65.80 after the company reported its latest quarterly results. 

Revenue in the fiscal fourth quarter ending on February 4, which included the 14th week, rose 6.3% to $599.1 million, net income declined to $36.2 million from $39 million, and diluted earnings per share rose to 88 cents from 80 cents a year ago. 

The 14th week in the fourth quarter, also the 53rd week in the fiscal year, contributed $39.5 million in revenue. 

Cal-Maine jumped 5.6% to $62.46 after egg producers reported better-than-expected quarterly results. 

Revenue in the fiscal third quarter ending on March 2 decreased to $703.1 million from $997.5 million, bet income plunged to $146.4 million from $322.7 million, and diluted earnings per share dropped to $3.0 from $6.62 a year ago. 

The net average selling price per dozen of eggs declined to $2.24 from $3.30 a year ago. 

 

European Markets Rebound from Morning Lows

European markets pared morning losses after eurozone inflation eased more than expected in March. 

Benchmark indexes in Paris and Frankfurt inched closer to record territory, and the reference indexes in London struggled to gain traction. 

Stocks rebounded after eurozone inflation unexpectedly eased in March, stoking speculation that policymakers may lower the rate as early as June. 

Despite the easing of overall and core inflation in March, prices are still rising faster than the central bank's target rate of 2%, suggesting that it may be too soon for policymakers to lower the interest rate. 

Moreover, crude oil prices rebounded to a five-month high due to the ongoing war in Ukraine, and persistent supply chain disruptions in the Red Sea. 

 

Eurozone Inflation Slowed In March

Consumer price inflation in the eurozone eased to 2.4% in March from 2.6% in February, according to a preliminary report released by Eurostat. 

Overall inflation dropped to a 28-month low and matched the level last seen in November. 

The core rate of inflation, which excludes volatile energy and food prices, slowed to 2.9% from 3.1% in February. 

Much of the decline in overall inflation was driven by the slowdown in price increases for goods, but service inflation held steady at 4.0%. 

Energy price declines slowed to 1.8% from 3.7%, but food, tobacco, and alcohol inflation moderated to 2.7% from 3.9%, and non-energy industrial goods inflation slowed to 1.1% from 1.6% from the previous month, respectively. 

On a monthly basis, inflation accelerated to an increase of 0.8% in March from a rise of 0.6% in February. 

 

Euro Area Unemployment Held at Record Low 6.5% 

The jobless rate in the Euro Area held firm at 6.5% in February, matching January's level, Eurostat reported Wednesday. 

The number of people looking for jobs increased by 17,000 from January to 11.102 million; however, the jobless rate among those younger than 25 years was unchanged at 14.6%. 

The number of unemployed declined by 30,000 from a year ago. 

The youth jobless rate held steady for the fourth consecutive month, and about 2.319 people were looking for a job in the eurozone. 

The unemployment rate across the eurozone varied sharply, and across the four major economies of the currency union, Spain led with 11.5%, followed by Italy with 7.5%, Italy with 7.4%, and Germany with 3.2%. 

 

Europe Indexes and Yields

The DAX index increased by 0.4% to 18,363.20, the CAC-40 index rose by 0.3% to 8,153.10, and the FTSE 100 index inched higher by 0.01% to 7,936.86.

The yield on 10-year German bonds edged down to 2.36%; French bonds inched higher to 2.89%; the UK gilts edged lower to 4.08%; and Italian bonds inched higher to 3.79%.

The euro edged higher to $1.077, the British pound inched higher to $1.257, and the U.S. dollar held steady at 90.85 Swiss cents.

Brent crude increased $0.47 to $89.76. a barrel, and the Dutch TTF natural gas fell by €0.85 to €25.62 per MWh.

 

Europe Stock Movers

Lonza Group advanced 1.5% to CHF 540.20 before the Swiss chemical maker requested a trading halt before the pending announcement. 

Swiss Re declined 2% to CHF 113.05 after the company appointed Andreas Berger as Group Chief Executive Office effective July 1. 

Renishaw plc declined 3.3% to 4,205.0 pence after Siemens AG confirmed it has no plans to acquire the British engineering company. 

Genmab A/S fell 1.8% to DKK 2,048.0 after the Danish biotech company announced the purchase of the privately held Profound Bio for $1.8 billion. 

Wizz Air Holdings rose 0.6% to 2,132.0 pence after the discount carrier announced its March passenger traffic statistics. 

In March 2024, Wizz Air carried 4,778,980 passengers, representing a 12.0% increase from a year ago at a load factor of 90.8%, impacted by home-bound traffic during the Easter holiday.

Over the twelve-month period to March, passenger traffic surged 21.4% to 62.0 million from 51.0 million in the similar period ending in March 2023. 

Topps Tiles declined 3.9% to 42.30 pence after the UK-based tiles and supplies retailer reported lower half-year sales. 

Sales in the first half ending in March declined 5.9% to £122 million, due to comparable sales in the second quarter falling 11.3%, driven by fewer customers and smaller sales volume. 

The company also issued a profit warning, citing weak market conditions and subdued demand for renovation from individual customers. 

"Group profitability in the first half of the year will be impacted by a number of factors, including the weaker market, the timing of the holiday pay accrual, and seasonally higher energy usage in the period. 

We continue to expect the group's profits in 2024 to be weighted towards the second half as indicated in our Q1 trading update," the company highlighted in its statement to investors. 

Meyer Burger Technology AG dropped 22% to CHF 0.016 after the Swiss solar panel maker said it completed its rights offering to raise additional capital. 

 

Asian Markets Decline, Investors Dial Down Rate Cut Expectations

Market indexes in Japan, South Korea, and China dropped as much as 1% on the growing skepticism that the U.S. Federal Reserve would lower its rate in June after a string of economic data suggested stronger-than-expected economic activities. 

Construction spending and manufactured goods orders rose sharply from a year ago in February, and job openings edged higher in March to 8.6 million, indicating moderate but healthy labor market conditions. 

 

Taiwan Struck with 7.3 Magnitude Earthquake

Japan issued a tsunami alert after a 7.3-magnitude earthquake struck Taiwan and tremors felt as far away as Hong Kong. 

Semiconductor plants evacuated plants in Taiwan after the earthquake struck the east coast of Taiwan at 7:58 local time on Wednesday, according to local authorities. 

Taiwan Power Company confirmed that most of the power supply was restored within two hours of the earthquake. 

The quake was the strongest to hit the island since 1999, when a 7.6-magnitude earthquake rocked the island and killed 2,400 people and damaged 50,000 structures in Taiwan's worst-recorded earthquakes. 

 

Tokyo Indexes Turn Lower In Volatile Trading 

Market indexes in Tokyo edged lower and dropped to a two-week low after investors dialed back U.S. rate-cut expectations. 

Market sentiment was dented after the latest U.S. jobs report showed strong labor demand and resilient economic conditions. 

Moreover, investors were on guard after Japan issued a tsunami alert for Okinawa Prefecture after Taiwan was struck by a 7.3-magnitude earthquake, killing at least 4 and injuring 97. 

Japan's service index was revised lower to a seven-month high of 54.1 in March from the preliminary estimate of 54.9. 

Despite the downward revision, service sector activities have been expanding for 19 consecutive months due to improving demand and an expanding customer base. 

The Nikkei 225 index decreased 0.6% to 39,621.99, and the Topix index eased 0.01% to 2,715.70. 

Rate-sensitive stocks and technology stocks were among the leading gainers amid weak market conditions in Tokyo trading. 

Mitsubishi UFJ, Mizuho Group, and Sumitomo Mitsui gained between 0.3% and 2.2%. 

Tokyo Electron, Screen Holdings, and Advantest gained between 0.4% and 1.6%, but SoftBank eased 1.3%. 

Kansai Electric Power, Tokyo Gas, and Chubu Electric Power advanced between 2% and 4%. 

 

Shanghai and Hong Kong Indexes Ease

Stocks in Shanghai and Hong Kong fell after strong U.S. economic data pushed U.S. bond yields to a three-month high, sparking global risk-off sentiment. 

The market sentiment was overwhelmed by the global sell-off, and investors overlooked the improving service activities in China. 

China's service activities rose at the fastest pace in three months, according to a private survey released by S&P Global. 

The increase in service activities was driven by the rise in new orders and exports, which rose at the fastest pace in nine months amid improvements in demand conditions and new business development activities. 

The Caixin China General Service PMI Index improved to 52.7 in March from a three-month low of 52.5 in February, and the index showed rising activities for the 15th month in a row. 

Markets in Shanghai and Hong Kong have been on the defensive after the government intervention in February failed to spark a sustained recovery in financial markets. 

The CSI 300 index declined 0.3% to 3,570.78, and the Hang Seng index dropped 0.7% to 16,806.29. 

Alibaba Group declined 0.3% to HK$70.80 and erased an early gain of as much as 1.2% after the company confirmed the repurchase of $4.8 billion of its own stock in the first quarter. 

Interest-rate-sensitive stocks and banks were among the leading decliners. 

Bank of China declined 1.3% to HK$3.25, HSBC Holdings plc dropped 1.1% to $61.25, and China Construction Bank eased 0.2% to HK$4.84. 

Xiaomi Corp. decreased 3.1% to HK$15.78 and erased about 9% of the gain in the previous session after the smartphone maker launched its first electric vehicle. 

 

India Indexes Under Pressure Amid Rising Commodity Prices

Stocks in Mumbai struggled to advance in Wednesday's trading amid weakness in Asian markets. 

The Sensex and the Nifty indexes edged down, and gold traded at a new record high amid rising tensions in the Middle East. 

Moreover, crude oil prices in international markets traded at a 5-month high after Brent crude oil crossed $85 a barrel. 

Investors remained cautious ahead of the start of the earnings season, and tech service companies are expected to report muted earnings growth. 

Higher commodity prices in international markets also weighed on market sentiment, as rising tensions in the Middle East and Red Sea and the protracted war in Ukraine added to supply chain disruption worries and global interest rate uncertainty. 

The Sensex index decreased 0.2% to 73,757.23, and the Nifty index edged down 0.3% to 22,385.70. 

The yield on the 10-year Indian government bonds held steady at 7.10%, and the Indian rupee held steady at ₹83.35 against the U.S. dollar.