Weekly Market Report
On the eve of the US Federal Reserve (Fed) meeting, slowing activity data and downward-resistant prices led the market's expectation of the first and only cut (from the previous 2) in the benchmark rate to be postponed until September/November. Specifically, GDP slowed in Q1 to +1.6% annualized versus the +2.5% estimated, while the March personal consumption expenditures (PCE) price index beat expectations, posting +2.7% y-o-y and +2.8% in the core measure. This sets the stage for higher rates for longer, favoring fixed income entry opportunities to secure high nominal yields in quality bonds, with the short end of the curve being the most attractive for conservative profiles and the medium end for moderate and growth ones. Against this backdrop, U.S. Treasury bond yields widened across all maturities during the week. Thus, the 1-year bond stood at 5.2%, the 3-year at 4.8% and the 10-year at 4.7%. At the regional level, 10-year dollar sovereign bond yields in Brazil and Mexico stood at 6.62% and 5.90%, respectively, following the release of mid-April inflation.
Weekly Report
International
The focus of the week will be on the Fed's monetary policy meeting, which is expected to maintain the reference rate in the 5.25%-5.5% range. At the same time, the labor market evolution for April will be released, with a projected unemployment rate of 3.8% and the creation of 246 thousand new jobs. Meanwhile, in the Eurozone, the first quarter GDP will be published, with the latest figure of +0.1% y-o-y, and preliminary inflation for April.
In the run-up to the Fed meeting, slowing US activity data and downward-resistant prices led to the expectation of the first and only interest rate cut (from the previous 2) to be postponed until September/November. Specifically, GDP decelerated in the 1st quarter to +1.6% annualized, lower than the +2.5% expected and +3.4% in the previous quarter. Meanwhile, the personal consumption expenditure (PCE) price index for March registered +2.7% y-o-y and +0.3% monthly; while the core measure (excluding food and energy) -the preferred measure for monetary policy decisions-, registered +2.8% y-o-y and +0.3% monthly. It is worth noting that the year-on-year data exceeded expectations.
In this context, US Treasury bond yields widened during the week. Thus, the 1-year yield rose from 5.15% to 5.20%, the 3-year from 4.82% to 4.83% and the 10-year from 4.62% to 4.66%. In turn, the average yield of Investment Grade corporate bonds (ETF LQD) closed at 5.8%. On the equity side, the main indices closed higher, with the Nasdaq particularly noteworthy with a +2.7% increase for the week.
In this Q1 2024 U.S. corporate earnings season, 46% of S&P 500 companies have reported results so far, of which 77% surprised on the upside in terms of revenue and 60% on earnings. In particular, earnings have been growing at an average annual rate of 3.5% in this first quarter.
Last week Meta, Microsoft and Google beat market expectations in terms of both revenue and earnings. Then, Exxon and Chevron came in above market estimates in terms of revenue but not earnings, while Tesla's quarter-end figures came in below analysts' consensus in both cases. This week we will see results from Amazon, Eli Lilly, Coca Cola and Apple, among others.
In the Eurozone, the sectoral Purchasing Managers' Indices (PMI) for April had mixed results. While the manufacturing PMI came in at 45.6 points, lower than the 46.5 points expected, the services PMI came in above expectations at 52.9 points. It should be recalled that a figure above 50 points implies expansion, and one below, contraction. Thus, the EuroStoxx 50 equity index ended the week with an increase of +1.8%.
Regional
The week's focus in Brazil will be on the industrial production data for March, which last month posted a +5% y-o-y increase. Mexico will release its GDP for the first quarter of the year, with the latest figure showing a +2.5% yoy increase. In Chile, economic activity for March will be released.
Regarding Latin American sovereign debt performance, 10-year dollar bond yields in Brazil and Mexico moved from 6.61% and 5.87% at the end of the previous week, to the current level of 6.62% and 5.90%, respectively.
In Brazil, inflation in the first half of April decelerated again and came in lower than expected. Specifically, it registered +0.2% with respect to the previous period and +3.8% y-o-y, versus +0.3% and +3.9% projected, respectively. As a result, the exchange rate closed at 5.1 reais per dollar.
In Mexico, economic activity in February showed a significant expansion, registering +1.4% monthly and +4.4% year-over-year, exceeding expectations. Meanwhile, inflation in the first half of April was +0.1% versus the previous period and +4.6% y-o-y, above estimates of -0.03% and +4.5%, respectively. In this scenario, the stock index advanced +3.5% in the week, while the exchange rate ended at $17.2 per dollar.
Weekly Market Report
Federal Reserve (Fed) Chairman Jerome Powell stated that recent inflation data and the resilience of the economy do not generate enough confidence at this time to ease monetary policy. In fact, while the market has reduced from 3 to 2 the cuts expected for 2024, some members of the policymaking committee have stated that it would be appropriate to leave the benchmark rate unchanged this year. Therefore, a higher rate scenario is expected for longer, favoring fixed income entry opportunities for investors seeking to lock in high nominal yields in quality bonds, with the middle tranche (3-7 years) being the most attractive. In line with this, the March PCE data will be released this week, which is expected to be +2.7% year-on-year in the core, a benchmark for monetary policy decisions.Against this backdrop, US Treasury bond yields widened across all maturities during the week. Thus, the 1-year bond stood at 5.15%, the 3-year at 4.82% and the 10-year at 4.62%. At the regional level, economic activity in Brazil grew +2.6% y-o-y, accumulating +3% in the year. However, the Bovespa stock index declined -0.6% on a weekly basis.
Monitor Semanal
International
The week's focus in the United States will be on the preliminary estimate of the Gross Domestic Product (GDP) for the first quarter of the year, with an expected growth of +2.5% annualized. In addition, the Personal Consumption Expenditure Expenditure (PCE) price index -the Fed's preferred measure for monetary policy decisions- for March will be published, projecting year-on-year increases of +2.6% and +2.7% for the measurement without food and energy. On the other hand, in the Eurozone, the sectorial Purchasing Managers' Indices (PMI) for April will be released, which anticipate the evolution of economic activity.
In the United States, activity data for March reaffirmed the resilience of the economy. Specifically, March retail sales rose +0.7% month-on-month (+0.4% projected) and +4% year-on-year. Meanwhile, industrial production in March showed an improvement compared to February, posting +0.4% month-on-month, in line with expectations, with no changes year-on-year.
In view of this more benign outlook than expected, Jerome Powell, head of the Fed, confirmed during his participation in the Washington Forum that the latest inflation data are insufficient to generate the necessary confidence to start cutting the reference rate (currently 5.5%) soon. A similar position was taken by other members of the monetary policy committee, whose statements emphasized that it would not be appropriate to lower it this year.
Against this backdrop, and given the heightened geopolitical tensions in the Middle East and investors' risk aversion, U.S. Treasury bond yields rose during the week. Thus, the 1-year yield rose from 5.13% to 5.15%, the 3-year from 4.72% to 4.82% and the 10-year from 4.51% to 4.62%. In turn, the average yield of Investment Grade corporate bonds (ETF LQD) closed at 5.8%. On the equity side, the main indices closed negative for the most part, with the Nasdaq being the most affected with -5.5%, followed by the S&P 500 (-3%).
As the first quarter corporate results season has begun, this week Goldman Sachs, Bank of America and Morgan Stanley reported earnings per share (EPS) and revenues above expectations. Meanwhile, Procter & Gamble only beat the EPS estimate, but not the revenue estimate. Reports from Meta Platforms, Visa, Tesla, Novartis ADR, Lockheed Martin, Microsoft, Amazon, Alphabet and T-Mobile US, among others, are expected this week.
In the Eurozone, February industrial production increased +0.8% month-on-month, while it declined -6.4% year-on-year, slowing the pace of decline compared to January. On the other hand, the preliminary inflation estimate for March was ratified, which registered year-on-year increases of +2.4% and +2.9% in the measurement that excludes food and energy, slowing down with respect to February. In this context, the euro ended at 1.07 per dollar.
Regional
The week's focus will be on mid-April inflation data for Brazil and Mexico, with March's results being +0.4% and +0.3% increases versus the previous period, respectively. In Brazil, the consumer confidence index for April will be released, and in Mexico, the economic activity for February.
Regarding the performance of Latin American sovereign debt, 10-year dollar bond yields in Brazil and Mexico went from 6.40% and 5.79% at the end of the previous week, to the current level of 6.61% and 5.87%, respectively.
In Brazil, February economic activity advanced +0.4% monthly, in line with expectations, accumulating +3% for the year. However, the year-on-year comparison was +2.6% versus the projected +2.7%. Nonetheless, the Bovespa index declined -0.6% on a weekly basis.
In Mexico, February retail sales rose +0.4% month-over-month and +3% year-over-year, after two consecutive months of declines. Despite this, the benchmark stock index ended with a -1.2% decline for the week.
