On the latest edition of Market Week in Review, Director and Global Head of Solutions Strategy, Van Luu, discussed the latest rate decisions from key central banks. He also talked about fiscal reform in Germany and reviewed recent U.S. market performance.
No cuts
Luu began by noting the U.S. Federal Reserve (Fed) opted to leave interest rates unchanged at its March 18-19 meeting, maintaining its policy rate in a range of 4.25%-4.50%. This marked the second straight meeting where the Fed held rates steady, he said.
“The central bank’s updated economic projections suggest a growing risk of stagflation,” Luu remarked, explaining that the Fed raised its forecast for inflation while lowering growth expectations. The central bank also announced it will slow the pace of its balance sheet reduction beginning in April. The Fed is doing this to avoid disruptions to markets as political negotiations to raise the U.S. debt limit play out, Luu stated.
Markets reacted positively to the Fed’s decision, he said, noting Chair Jerome Powell downplayed inflation and recession risks at the follow-up press conference. “This helped lift the mood in markets,” Luu remarked.
Shifting to the UK, he said the Bank of England (BoE) also left its key lending rate unchanged at 4.5% in an 8-1 vote. “This was a slight hawkish surprise for economists, who had expected one more voting member to join Swati Dhingra in favoring a cut,” Luu commented.
He added that both central banks attributed their wait-and-see attitude on rates to high uncertainty surrounding international trade policy.
Looser limits
Turning to Germany, Luu said the country’s parliament—known as the Bundestag—passed a constitutional amendment on Tuesday to reform its “debt brake” policy. The “debt brake” restricts how much money the government can borrow. The amendment, which passed with the required two-thirds majority, will allow for much higher spending on defense, infrastructure, and environmental protection, Luu said. He added that Germany’s upper house—the Bundesrat, which represents the state governments—is expected to pass the legislation Friday.
“From my vantage point, this fiscal reform in Germany is very important and positive for the growth prospects of Europe’s largest economy. It resembles former European Central Bank President Mario Draghi’s “whatever it takes” attitude in 2012 when the integrity of the euro area was in doubt,” Luu remarked.
Stabilizing markets
Luu finished with a look at recent U.S. economic data and market performance. The latest data was mostly in-line with economists’ expectations, he said. “Jobless claims edged up and the Philadelphia Fed’s manufacturing index was slightly better than expected, although the outlook component of the index worsened,” he said.
Meanwhile, U.S. stock markets stabilized this week—a welcome reprieve for investors after last week’s decline. Through Thursday, the S&P 500 was positive on the week, Luu noted.
“The respite comes as our proprietary measure of investor sentiment is suggesting oversold conditions in the U.S. stock market, which could indicate a potential buying opportunity,” Luu stated.
He concluded by adding that on the fixed income side, bond yields fell moderately and prices rose as investors were soothed by Powell’s optimistic remarks on tariff and inflation risks.
More By This Author:
Is Stagflation Lite On Tap?
Volatility Returns With A Vengeance
Election Debrief: Why The Era Of Uncertainty May Continue In Canada
Disclosure: These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions ...
more
Disclosure: These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
This material is not an offer, solicitation or recommendation to purchase any security.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
The Russell logo is a trademark and service mark of Russell Investments.
This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
CORP-12743
Disclaimer: Opinions expressed by readers don’t necessarily represent Russell’s views. Links to external web sites may contain information concerning investments other than those offered by Russell Investments, its affiliates or subsidiaries. Neither Russell Investments nor its affiliates are responsible for investment decisions with respect to such investments or for the accuracy or completeness of information about such investments. Descriptions of, references to, or links to products or publications within any linked web site does not imply endorsement of that product or publication by Russell Investments. Any opinions or recommendations expressed are solely those of the independent providers and are not the opinions or recommendations of Russell Investments, which is not responsible for any inaccuracies or errors.
Investing in capital markets involves risk, principal loss is possible. There is no guarantee the stated outcomes in the presentation will be met.
This is a publication of Russell Investments. Nothing in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The contents in this publication are intended for general information purposes only and should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional concerning your own situation and any specific investment questions you may have.
Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments’ management.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.
Copyright © Russell Investments Group LLC 2023. All rights reserved.
less
How did you like this article? Let us know so we can better customize your reading experience.
