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Investment Institute
Weekly Market Update

Take Two: Fed leaves rates on hold; Eurozone economy returns to growth

  • 06 May 2024 (3 min read)

What do you need to know?

The Federal Reserve (Fed) left interest rates on hold at 5.25%–5.50% last week, indicating they could potentially stay high for longer than anticipated. Fed Chair Jerome Powell said he did not expect rates to ease until the central bank has “greater confidence that inflation is moving sustainably toward 2%”, which could “take longer than previously expected”. The Fed committee’s official statement noted a “lack of further progress” towards inflation goals in recent months, with the economic outlook “uncertain”. AXA IM continues to forecast two interest rate cuts this year and three further cuts in 2025.


Around the world

The Eurozone economy returned to growth in the first quarter (Q1) as GDP expanded by 0.3% from the previous quarter, following a contraction of 0.1% in Q4 of last year. The Q4 figure was revised down from 0.0%, meaning the bloc had been in recession in the second half of 2023. Meanwhile Eurozone annual inflation remained unchanged at 2.4% in April, a preliminary estimate showed. Core inflation, which excludes food, energy, alcohol and tobacco, slowed to 2.7% from 2.9%. The data reinforced expectations the European Central Bank will cut interest rates in June.   


Figure in focus: 3.1%

The global economy is expected to grow by 3.1% this year and 3.2% in 2025, according to the Organisation for Economic Co-operation and Development (OECD), which revised up its February forecast of 2.9% and 3.0% growth respectively. It said there are “signs that the global outlook has started to brighten, though growth remains modest”. Inflation is falling faster than initially projected though high interest rates are continuing to impact housing and credit markets. The OECD highlighted the divergence between economies; it expects the US to expand 2.6% this year compared to 0.7% growth in the Eurozone. AXA IM forecasts global growth of 3.1% this year and next.


Words of wisdom

Global plastics treaty: A legally binding pact to address plastic pollution, to be delivered by the end of 2024 following an agreement at the United Nations Environment Assembly in 2022. The latest round of talks saw countries pledge to devise a process to identify hazardous plastic chemicals and wasteful products but stopped short of any agreement on limiting the amount of plastic produced. The final negotiations begin in November, when nations intend to finalise how to address the full lifecycle of plastics from production to use and disposal. Supporters say it could be the most significant climate-related deal since the 2015 Paris Agreement.


What’s coming up?

On Monday, China and the Eurozone publish their latest Purchasing Managers’ Indices (PMIs). Japan’s PMI figures follow on Tuesday while the Bank of Japan publishes its Summary of Opinions, including its projections for inflation and economic growth, on Thursday. The same day will see the Bank of England convene to decide on interest rates, while a preliminary estimate of UK Q1 GDP growth is reported Friday. China will release April inflation figures on Saturday.

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