The FTSE 100 and European stocks were mostly higher on Wednesday

The FTSE 100 has continued its march higher, which was well overdue, but we are starting to wonder when it will run out of steam. 

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Last night, chairman Jerome Powell said he did not expect interest rates to be increased again and today’s inflation figures probably confirmed that.

Meanwhile, this morning we saw that in the last quarter the eurozone economy grew 0.3% in the first three months of the year and unemployment remained steady. 

The single currency’s gross domestic product (GDP) expanded during the period, although only half as fast as the UK. 

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In the US

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In the US equities pushed higher in early trading after data showed the consumer price index cooled a little in April for just the first time in six months. 

The S&P 500 looked poised to hit its 23rd all-time high in 2024. Treasury two-year yields dropped eight basis points to 4.73%. Fed swaps priced in a faster pace of policy easing for the year.

The core consumer price index, which excludes food and energy costs, still increased 0.3% from March, according to government data out Wednesday. The year-over-year figure came in at 3.6% which is still well above target, and although the number cooled on the month from 0.4% to 0.3%, the number the Fed is looking for is around 0.17%.

Although this will offer reassurance to markets after an unwelcome uptick in CPI figures last month, the figures are unlikely to prompt an imminent change in interest rates. Patience has been the Fed’s core message lately. In the meantime, we watch and wait.

At the same time, we saw US retail sales stagnate in April after downwardly revised gains in the prior two months, indicating high borrowing costs and mounting debt are encouraging greater prudence among shoppers.

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Corporate Highlights so far this week

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• This week’s renewed frenzy around meme-stock favourites GameStop Corp. and AMC Entertainment Holdings Inc. cooled off Wednesday.
• Boeing Co. faces possible criminal prosecution after the US Justice Department found the company violated a deferred-prosecution agreement tied to two fatal crashes half a decade ago, intensifying the crisis engulfing the embattled US plane maker.
• Shareholders in BHP Group Ltd. and takeover target Anglo American Plc expect the world’s largest miner to come back with a third and improved proposal before a regulatory deadline next week, even after the smaller company laid out a bold restructuring plan of its own.
• Burberry Group Plc warned of a challenging first half after the British maker of pricey trench coats reported tumbling sales on weak demand in China and the US.

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In China

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China is considering a proposal to have local governments across the country buy millions of unsold homes, people familiar with the matter said, in what would be one of its most ambitious attempts yet to salvage the beleaguered property market.

The State Council is seeking feedback from several provinces and government entities on the preliminary plan, said the people, asking not to be identified discussing a private matter. While China has already experimented with several pilot programs to clear excess housing inventory with the help of state funding, the latest plan would be much larger in scale.

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Oil

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Oil continued to trade in a narrow range on Wednesday as the International Energy Agency cut its 2024 forecast for demand growth by 140,000 barrels a day.

Brent futures hovered near $82 a barrel, trading tightly so far on Wednesday, while WTI was near $78. Adding to the IEA’s bearish cut to demand growth was a four million barrel weekly gain in crude stockpiles in the Amsterdam-Rotterdam-Antwerp region, Europe’s oil trading hub.

Meanwhile, crude inventories recently fell by 3.1 million barrels in the US, while analyst Rystad expects strong global demand for gasoline and European jet fuel.

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Crude futures have gained ground this year as OPEC+ curtailed output to prevent a glut and shore up global prices. In the run-up to deciding whether to extend the curbs at a June 1 meeting, members are grappling with the thorny issue of how much oil they are capable of pumping — several major exporters are seeking to have their levels upgraded, with a view to securing the right to pump more crude in 2025.

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Figures to come

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The main data release of the week is out of the way now but there are still a few minor figures to come. 

Tomorrow we’ll see the Philadelphia Fed Manufacturing Index, Initial Jobless Claims and Import Prices out of the US.

On Friday, the final release of the Euro Area inflation rate which is expected to be 2.4%. The work here is pretty much done and we expect the ECB to begin cutting rates very soon.

One thing worth mentioning about rates and expectations from the public is that high rates are here to stay, only they aren’t high rates, they are simply ‘rates’. The same goes for the UK. The Bank of England base rate should normalise between 3.5% and 4.25% for the next 10 years. It is just where interest rates should be. 

We have become far too familiar with low rates after the financial crash. We don’t expect the next decade to be a time of low rates, or high rates. Normalising rates is now important to build long-term financial stability and that is what we want to see.

It’s not exciting, and it might not be the sensationalising of information that the press is looking for, but it’s just the honest truth. Don’t expect rates to fall way down and pin your hopes on mortgage rates getting back down below 3%, this will almost certainly not happen.

We need to be told what is going to happen, not how dramatically rates will fall because they won’t. It will be slow and expect them to normalise at a ‘high’ level for much much longer. 

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