Investment Institute
Weekly Market Update

Take Two: Stocks hit record highs; Fed and ECB cautious of cutting rates prematurely

  • 26 February 2024 (3 min read)

What do you need to know?

Global markets notched up further gains over the past week, with US, European and Japanese indices hitting all-time highs. On Thursday, the S&P 500 and the Dow Jones Industrial Average both hit new highs – with the latter closing above 39,000 for the first time. Europe’s Stoxx 600 also closed at a fresh high, beating its previous January 2022 record, while the Nikkei 225, Japan’s primary stock market index, eclipsed its previous best after 34 years. Upbeat results from US chipmaker Nvidia spurred investor optimism over artificial intelligence, while the yen’s weakness also helped Japanese exporters.


Around the world

Central bankers are cautious of cutting interest rates too soon as inflation remains a concern, minutes of the Federal Reserve’s (Fed) and European Central Bank’s latest meetings showed. Fed officials do not expect to cut interest rates until they have “greater confidence” that inflation is decreasing sustainably towards the Fed’s 2% target, though they noted however that economic activity had been expanding at “a solid pace” alongside significant disinflation in the second half of last year. ECB policymakers meanwhile felt “continuity, caution and patience” were still needed as cutting rates too soon could undo some of the progress on lowering inflation, according to minutes of their January meeting.

Figure in focus: 3.95%

China announced its biggest-ever cut to its key mortgage benchmark rate last week, a move that could help boost its beleaguered property market. The 25-basis-point reduction in the five-year loan prime rate to 3.95% - the most common peg for mortgages – was the first since last June, and more than analysts expected. Separately, foreign direct investment in China increased at its slowest pace in 30 years in 2023, some 82% down from 2022. More positively, domestic tourism spending in China over the Lunar New Year rose to some ¥632.7bn ($88bn), a 47% increase on 2023 and above pre-pandemic levels, government data showed.


Words of wisdom

Air quality roadmap: The European Union (EU) has reached a provisional agreement to strengthen air quality standards across the bloc in a bid to achieve its zero-pollution objective and a toxic-free environment by 2050. The proposal consists of short and long-term plans and covers limits and standards on a host of air-polluting substances, bringing the EU closer to World Health Organization guidelines. The agreement, yet to be formally confirmed by the European Parliament, asks member states to establish an air quality roadmap if the level of pollutants exceeds the limit ahead of the deadline.

What’s coming up?

On Tuesday, the Bank of Japan publishes January’s inflation data. Wednesday sees a spate of Eurozone surveys, including the latest Economic and Industrial Sentiment and Consumer Confidence indices issued, while a second estimate for US Q4 GDP growth is also expected. On Thursday, Germany issues preliminary inflation figures for February while Canada reports its Q4 GDP growth rate. On Friday, the Eurozone publishes flash February inflation data while Purchasing Managers’ Indices are issued for China, Japan, the Eurozone, UK and US.

    Disclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.