US markets appear to be hoppin' along as the new quarter comes to begin after a long Easter Weekend as last week's inflation data tried to reinforce hopes that the Fed will cut interest rates this year. The Fed's preferred gauge of underlying inflation (PCE) cooled in February, while household spending appeared to be rebounding. Jerome Powell also reiterated last Friday, as the US markets were closed for Easter, that the Fed isn't in any rush to cut rates as more evidence is needed that inflation is contained. The bullish soft-landing narrative appears to still be intact in the hearts of most although we caution that the Fed could remain strict on maintaining rates where they are for longer and that valuations may be getting a bit to pricey to ignore (see below).
According to Citi, the US stock market rally is set to broaden beyond the scope of Tech names, as they downgraded its outlook of the highly valuated sector. Strategists see defensive stocks benefitting from lower rates in the intermediate future.
China posted better than expected manufacturing data to start the quarter, Caixin manufacturing purchasing managers’ index rose to 51.1, as optimism is starting to take light that the country may be able to achieve its ambitious growth goal of around 5% this year. Gov data published on Sunday showed manufacturing PMI in March snapped a five-month contraction to rise to the highest in a year. The CSI 300 Index rose 1.5% on Monday.
With US names trading starting to get more and more expensive, developing-nation stocks are now trading at a discount of about 43% compared to US peers, just shy of the largest valuation gap on record. This valuation gap appears to be helping to fuel a rush into actively management ETFs that focus on emerging markets.
According to former BOJ official Tsutomu Watanabe, the BOJ will probably take its time before hiking again, with October the earliest it might move.
AP has an interesting article out on why consumers should be wary of economic damage from deflation in part by the idea that falling prices tend to discourage consumers from spending in order to just buy something at a later date at a lower price. The economy’s health depends on steady consumer purchases and in the US, household spending accounts for roughly 70% of the entire economy. Businesses could face intense pressure to cut prices even further to try to jump-start sales causing a trickle down effect that would cause employers to lay off waves of employees/cut pay, increasing odds of a full blown recession.
Reuters cites results from a survey from market intelligence firm Caliber that notes that prospective Tesla buyers are cooling on the car brand given its CEO’s “polarizing persona.” Good thing he’s not selling cologne….
Beginning today, most California fast-food workers will be paid a new minimum wage of $20/hr per NPR.