Investment Institute
Weekly Market Update

Take Two: US inflation rises; Japan avoids recession as Q4 GDP revised up

  • 18 March 2024 (3 min read)

What do you need to know?

US annual inflation unexpectedly edged ahead to 3.2% in February from 3.1% in January. The rise was partly due to increased gasoline prices and housing costs. However, core inflation, which excludes food and energy prices, eased from 3.9% to 3.8% - a near three-year low. The rise in prices prompted markets to scale back expectations of Federal Reserve (Fed) rate cuts this year, though the first cut is still anticipated in June. Fed Chair Jerome Powell stated earlier this month the central bank was “not far” from having confidence to begin its rate cutting cycle.

Around the world

Japan avoided recession in the fourth quarter (Q4) as revised government data showed the economy grew at an annualised rate of 0.4%, greater than the initial estimate of a 0.4% contraction. However, analysts had been expecting an upward revision to 1.1% growth. That followed a 3.3% contraction in Q3 - two consecutive quarters of contraction signify recession. Improved capital expenditure as companies spent more on plants and equipment increased by 2.0% quarter-on-quarter, driving the upward revision to GDP. Private consumption, which constitutes around 60% of Japan’s economy, decreased 0.3% in Q4, underlining concerns about its sluggish economic recovery.

Figure in focus: $100bn

After almost 16 years of negotiations India has agreed a $100bn trade deal with the European Free Trade Association (EFTA). The EFTA consists of Norway, Switzerland, Iceland and Liechtenstein, four European nations outside of the European Union. According to the EFTA the agreement will enhance market access and simplify customs procedures. This means India will quash most of its import tariffs on industrial goods for EFTA members in exchange for investments in industries such as pharmaceuticals, manufacturing and machinery over the coming 15 years. Over recent years, India has also agreed trade deals with the United Arab Emirates and Australia.

Words of wisdom

AI Act: The European Parliament has approved the first-ever legal framework around artificial intelligence (AI), including rules on biometric identification, chatbots and cybersecurity. The AI Act aims to ensure systems are safe and ethical, while helping Europe to play a leading role globally in the advancement of the new technology. It still needs the European Council’s formal endorsement before becoming law. The European Parliament also approved plans last week to make buildings more energy efficient; a target has been set to make all new buildings “zero-emission as of 2030”. It also requires member states to renovate some of the least energy-efficient buildings.

What’s coming up?

This week several central banks meet to decide on interest rates. The Bank of Japan convenes on Tuesday, while the Fed and Bank of England hold their respective meetings on Wednesday and Thursday. In terms of economic updates, the latest inflation data is expected from the Eurozone on Monday, Canada on Tuesday, the UK on Wednesday and Japan on Friday. Flash Purchasing Managers’ Indices covering March are issued for Japan, the Eurozone, US and UK on Thursday.


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