With the geopolitical strain in the Middle East escalating and the narrative around prolonged high U.S. interest rates gaining traction, there's been a notable decline in risk appetite. This shift has led to a downturn in Asian equities, propelled the dollar to its highest point in five months, and pushed the yen to its weakest position since the mid-90s.
European markets are poised for a downturn at the open, as indicated by futures, amidst this gloomy investment climate. The focus in the UK will be on the latest labor and wage statistics, as market participants assess the data for clues on the timing of the Bank of England's anticipated rate reduction phase.
The expectation for the commencement of policy relaxation is now centered around August, with predictions leaning towards a 49 basis point reduction within the year. Contrarily, the Federal Reserve seems unlikely to initiate its easing cycle promptly, especially after March's retail sales figures surpassed expectations, showcasing the enduring strength of the U.S. economy.
Market predictions have adjusted to forecast fewer than two rate cuts for the current year, a significant reduction from the six cuts anticipated at the beginning of 2024. The anticipated start for easing has been deferred to September from an earlier June prediction, which itself was a postponement from March.
Recent comments from Federal Reserve officials have further tempered expectations for imminent rate cuts, with Mary Daly of the San Francisco Federal Reserve emphasizing the importance of patience in policy adjustments.
Investors continue to gravitate towards gold and the dollar as safe havens amidst ongoing global uncertainties, including Israel's potential response to Iran's unprecedented direct assault. The yen's appeal as a secure asset has diminished, hitting a 34-year low, influenced by the growing disparity in interest rates between the U.S. and Japan.
Despite China's GDP surpassing forecasts, concerns linger over the nation's economic resurgence due to weaker performance in March. The spotlight also turns to LVMH's earnings report, as the luxury sector braces for the impact of China's faltering demand on sales.
Notable events that could sway market movements include UK employment data for February, average weekly earnings for the three-month period ending in February, and earnings reports from major companies like LVMH, UnitedHealth, Johnson & Johnson, Bank of America, and Morgan Stanley.
