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US equity markets experienced weekly declines despite some major indices having hit intraday highs on Friday. Stocks had experienced a downbeat start to the week on underwhelming news out of China, however momentum picked up on Wednesday with Federal Reserve chairman Jerome Powell testifying before Congress. Powell stated that the Fed was “not far” from having the confidence that the downtrend in inflation can be sustained, enabling it to begin cutting interest rates. This raised the odds of the first rate cut of this cycle occurring in June and helped push stocks higher.

Stocks also initially gained on Friday after the release of the non-farm payrolls report, where employers added 275,000 jobs in February, topping expectations, with the S&P 500 and Nasdaq briefly touching intraday records. However, they ultimately ended lower for the session and indeed the week, with the unemployment rate ticking up to 3.9% and wage growth slowing, as well as a degree of profit taking given the recent rally. For the week the S&P 500 ended 0.3% lower, the Dow Jones was down 0.9% and the Nasdaq lost 1.2%. Technology stocks were some of the biggest laggards, with Nvidia’s rally faltering on Friday. In contrast, Apple managed to snap a seven-day losing streak on Friday. Treasury yields slipped for the week following the mixed economic data and Powell’s comments. The yield on the 10-year Treasury note fell as low as 4.03%, its lowest level in a month, ending the week at 4.09%. Meanwhile Bitcoin continued its ascent, setting a fresh record on Friday and inching ever closer to the $70,000 level, while gold also traded at an all-time high.

It wasn’t just the prospect of Fed rate cuts lifting the mood, the European Central Bank also appeared to set the stage for a June rate cute. While the central bank left interest rates on hold, president Christine Lagarde acknowledged that good progress had been made in getting inflation back to target, with it now seeing inflation dropping to 2% in 2025 rather than 2026, and that they would know a lot more from data in June. For the week the pan-European STOXX 600 climbed 1.1%, its seventh consecutive rise and once again notching a record high. France’s CAC also ended at a record, adding 1.2% for the week, with most other regional indices also seeing gains. One outlier was the UK FTSE 100 which dropped 0.3%.

Japanese performance was mixed, with the Nikkei 225 drifting away from recent record peaks, down 0.6%, while the Topix index added 0.6%. The yen strengthened against the US dollar, hitting its highest level in a month, weighing on exporters. Nominal wages grew more than expected in January while inflation in Tokyo increased 2.5% year-on-year, raising expectations that the Bank of Japan could soon start raising interest rates. In China, the Shanghai Composite was up 0.6%, even against an uncertain economic outlook. At the National People Congress, Beijing set its economic growth target for this year at around 5%, the same as last year, a target some analysts described as ambitious, given last year had a degree of a post-lockdown bounce-back. On the bright side, export and import data for the first two months of the year rose more than expected.

Weekly macro highlights

US non-farm payroll employment rises in February

US non-farm payroll employment rose by 275,000 in February according to data published by the Bureau of Labor Statistics. February’s data was above market expectations for a 200,000 increase and above January’s 229,000 increase, which was revised down by 124,000 from an initially reported expansion of 333,000. With December’s data revised down by 43,000, combined employment in January and December is 167,000 less than previously reported. Driving the job gains in February were respective increases of 67,000, 52,000, and 42,000 in healthcare, government employment, and food services and drinking places. In addition to the establishment survey data, the household survey showed the unemployment rate rose from 3.7% in January to 3.9% in February, the top end of the 3.4-3.9% range it has remained in since February 2022. Average hourly earnings for all employees on private non-farm payrolls rose by 0.1% in February to USD 34.57, a level 4.3% higher than in February 2023.

ECB leaves interest rates unchanged in March

The European Central Bank (ECB) Governing Council decided to keep interest rates unchanged at its meeting on 7 March, with the deposit and refinancing rates remaining at 4.0% and 4.5% respectively. In communicating the decision, the ECB acknowledged that inflation has declined further since its last meeting in January. The central bank revised down its inflation projections, with headline inflation now expected to average 2.3% and 2.0% in 2024 and 2025 respectively, below the 2.7% and 2.1% projected in December. Furthermore, projected real GDP growth for 2024 was revised down from 0.8% to 0.6%, with the 1.5% projection for 2025 unchanged. Despite expectations for lower inflation and growth this year, the post meeting monetary policy statement emphasised a continued data-dependent approach. In particular, ECB president Lagarde noted “underlying measures of inflation remain high, in part owing to strong growth in wages”. Thus, future wage growth in the eurozone will be closely watched by the ECB.

Tokyo inflation rises in February

Tokyo headline CPI inflation, a strong leading indicator for nationwide inflation in Japan, rose from 1.8% year-on-year (YoY) in January to 2.6% YoY in February. Core inflation, which excludes fresh food prices, rose from 1.8% YoY to 2.5% YoY, in line with market expectations and above the Bank of Japan’s (BoJ) 2% target. The increases in headline and core inflation were mostly attributed to a large base effect due to the introduction of a government subsidy for fuel in February 2023. While energy prices still fell 7.9% YoY in February 2024, this represented a marked increase relative to the 20.1% YoY decline recorded in January. Excluding both fresh food and energy prices, core-core inflation fell from 3.3% YoY to 3.1% YoY in February. The BoJ has been closely watching services prices as a key indicator of underlying domestic inflationary pressures. Services inflation was unchanged at 2.1% YoY in February.