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Mixed start to second-quarter trading

US and Asian stock markets traded mixed on first session of the new quarter, while the major European markets reopen on Tuesday after the Easter holiday weekend. Stock markets were held in check by rises in US Treasury yields and a strong US Manufacturing Purchasing Managers’ Index (PMI) that drove back traders’ expectations for interest rate cuts by the Federal Reserve (Fed). Gold prices forged ahead to fresh all-time highs on Monday and oil was also trading higher to start the new week.

Shane Strowmatt, LGT
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5 minutes
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US stock markets were mixed on Monday, despite a solid ISM Manufacturing PMI released on the day, which came in at 50.3 for March, clearly beating market expectations and higher than February’s 47.8 reading. The March data is the highest level for the index since late 2022 and highlights the resilience of the US economy. It is also likely to buy the Fed more time to watch the effects of its restrictive monetary policy on inflation as it signals expansion to come in the US economy. After a stellar performance in the first quarter of the year, US equity indices were mixed with S&P 500 starting the second quarter in the red, falling 0.2% on Monday. The Dow Jones Industrial also lost 0.6%, while the Nasdaq-100 gained 0.2%.

In the Asia-Pacific region, Chinese stocks surged on Monday after the Caixin Global Manufacturing PMI came in at 51.1, slightly above expectations and also ahead of the official Chinese government data, which showed a PMI reading of 50.8 for March. On Tuesday, mainland Chinese stocks cooled down with the Shanghai Composite trading down 0.1%. Hong Kong's Hang Seng Index was up 2.1%, leading regional gains. Xiaomi shares were up about 11% in Hong Kong after the electronics company began taking orders for its electric car. In Tokyo, the Nikkei 225 was down slightly on Tuesday and in South Korea, the Kospi gained about 0.1%. Australia’s S&P/ASX 200 finished the day down about 0.1% after PMI dropped to 47.3 in March from 47.8 a month ago, the lowest level since the months following the outbreak of Covid in early 2020.

Looking beyond equities, gold reached new all-time highs on Monday, trading around USD 2250 per ounce to start the week. The safe-haven asset has seen strong demand, particularly due geopolitical concerns. On Monday, the conflict in the Middle East continued to escalate with Iran saying Israel bombed its embassy in Syria. The conflict in the region was also driving oil prices higher alongside expectations for stronger economic growth this year following Monday’s PMI Manufacturing readings out of the US and China. The expectations for more demand out of the world’s two largest economies pushed Brent crude to nearly USD 88 per barrel and West Texas Intermediate (WTI) above USD 84 per barrel.

As much of Europe returns from a long holiday weekend, traders can look forward to a slew of inflation data this week, including from Germany on Tuesday, the euro area on Wednesday and Switzerland on Thursday. Market participants will also sort through Services Purchasing Managers’ Indices (PMI) from several countries on Tuesday and Wednesday for clues about the state of some of the world’s largest economies, while equity markets were mixed to start the week.

Wrapping up macroeconomic data released last week, the US Personal Consumption Expenditures Price Index (PCE) gained 0.3% on the month in February or 2.5% when compared with the same period a year earlier, according to data released Friday. Core PCE - which strips out volatile food and energy prices and is the Fed preferred gauge of inflation - was also 0.3% higher in February or up 2.8% when compared with 12 months ago. While Federal Reserve’s preferred gauge of inflation has come down from levels over 5% in 2022, it is still stuck clearly above the Fed’s 2% inflation target.

On Thursday, US gross domestic product (GDP) growth was revised upward to a pace of 3.4% in the fourth quarter of 2023, up from the previous estimate of 3.2%. Also, the University of Michigan Consumer Sentiment Index increased unexpectedly for March to a final reading of 79.4, its highest value since July 2021. The strong reading beat analyst estimates and was accompanied by lower inflation expectations for the year ahead and over a five-year horizon.

Macroeconomic data released out of Europe at the end of last week includes Switzerland’s KOF Economic Barometer, which fell slightly to 101.5 points in March, a level above the long-term average. The index had increased quickly in the second half of 2023 and appears to be stabilising. The construction sector and private consumption weighed on the index in March.

Also released last week out of Europe was the German unemployment rate, which remained unchanged at 5.9% in March when adjusted for seasonal factors. While employment data was stable, German retail sales fell sharply in February, according to data released Thursday. Retail sales dropped by 1.9% in February when compared to January. As the German industrial sector has been struggling recently, economists had hoped that consumer spending could prop up the economy.

The UK was also confirmed to have fallen into a recession at the end of last year with fourth-quarter GDP contracting 0.3% after falling by 0.1% in the previous quarter. Two quarters of economic contraction is generally referred to a technical recession. The Bank of England kept interest rates steady last month but signalled easing may be imminent in an effort to prop up the economy.

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Services Purchasing Managers’ Indices from several countries throughout the day, Swiss retail sales, German Consumer Price Index, US JOLTS jobs report.

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Editor: Alessandro Fezzi
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