Investment Institute
Weekly Market Update

Take Two: US inflation eases; Eurozone 2025 GDP forecast nudged down

  • 20 May 2024 (3 min read)

What do you need to know?

US annual inflation edged back to 3.4% in April from 3.5% in March, prompting US stocks to hit a fresh high. Core inflation, which excludes food and energy prices, slowed to 3.6% from 3.8%, its lowest since April 2021. Both the S&P 500 and Nasdaq indices hit new highs following the news while the Dow Jones crossed the 40,000 mark for the first time during intraday trading on Thursday, as the softer inflation data raised hopes that the Federal Reserve (Fed) would begin cutting interest rates later in the year. We continue to expect the Fed to ease rates in September and December.


Around the world

The European Commission (EC) now expects Eurozone inflation to fall faster than previously, while 2025’s economic growth rate is also likely to be lower than it previously anticipated. It forecasts that inflation will fall from 5.4% in 2023 to 2.5% this year – down from February’s 2.7% forecast – and to 2.1% in 2025, compared to its earlier estimate of 2.2%. The EC continues to expect 0.8% GDP growth for the bloc in 2024 and 1.4% in 2025, revised down from 1.5%. We expect 0.3% growth this year and 0.8% in 2025. Meanwhile a second official estimate of first quarter (Q1) GDP showed the bloc’s economy expanded at 0.3% while the annual inflation rate was 2.4% in April, stable compared to March, and down from 7.0% a year ago.

Figure in focus: -2.0%

Japan’s economy shrank 2.0% in Q1 on an annualised basis, more than expected and a sharp reversal from Q4’s downward revised flat outturn (from 0.4% growth). The weak yen, which recently fell to a 34-year low against the US dollar, dampened consumer and business spending. Capital expenditure fell 0.8% on a quarterly basis in Q1 while private consumption, which accounts for more than half of GDP, fell 0.7%, where analysts had predicted a 0.2% decline. Rising wages and income tax cuts are expected to boost consumption in the coming quarters but the data could prompt the Bank of Japan to hold off tightening monetary policy further after it raised interest rates in March.


Words of wisdom

GPT-4o: As artificial intelligence (AI) continues to advance, ChatGPT maker OpenAI announced a new model, GPT-4o, which it said would be capable of realistic conversations and real-time language translation. Meanwhile at an event in Switzerland, International Monetary Fund Managing Director Kristalina Georgieva said AI could bring a “tremendous increase in productivity if we manage it well”. However, she added that it could also lead to more misinformation and inequality in society.

What’s coming up?

Canada publishes its latest inflation data on Tuesday, while the UK and Japan follow with their own respective inflation updates on Wednesday and Friday. The Fed publishes the minutes from its latest monetary policy meeting on Wednesday while flash Purchasing Managers’ Indices covering May are issued for Japan, the Eurozone, US and UK on Thursday. Germany reports its Q1 GDP growth rate on Friday.

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