Global markets focused on the growth data to be announced in the USA

In global markets, while concerns about escalating tensions between Israel and Iran and uncertainties about the future policies of the Fed led to a mixed trend this week, attention turned to the data to be announced in the USA next week.

Concerns about the Fed’s roadmap in the fight against inflation are already complicating asset pricing, while the risk perception of the tension in the Middle East not easing is significantly increasing.

Following Fed Chairman Jerome Powell’s hawkish remarks, concerns have increased that the bank will not start interest rate cuts anytime soon.

Powell signaled in his statements that the latest data suggest that the policy rate could remain high for longer than expected. Powell, stating that reaching the confidence they are looking for in the latest data will likely take longer than expected, drew attention to the fact that they can maintain the current level of restraint as long as high inflation persists.

Analysts, noting that investors have been cautious following both the data announced in the USA and Powell’s hawkish remarks, stated that the tension remaining high in the Middle East continues to dampen risk appetite.

In the money markets after Powell, the probability of the Fed starting interest rate cuts is priced at 16% in June, 41% in July, and 65% in September.

On the other hand, it was reported in the Beige Book report published by the Fed that the general economic activity in the country has recorded a “slight” increase since the end of February. The report, which indicates that the economic outlook is cautiously optimistic, stated that upward risks to short-term inflation are perceived in both input and output prices in several regions.

Analysts stated that the labor market in the USA remained resilient, reporting that Fed officials continued to be cautious.

Accordingly, New York Fed President John Williams stated that he did not think there was an urgent need for an interest rate cut and that interest rate cuts would be determined according to economic activity.

Atlanta Fed President Raphael Bostic also stated that inflation would return slower than expected to the target and that they were not in a hurry for interest rate cuts.

Moreover, the International Monetary Fund (IMF) reported that short-term financial stability risks had declined globally and there were fewer downside risks to global growth next year, warning, “However, the final stage of the decline in inflation could become complex due to several financial vulnerabilities that have become apparent in the short term.”

On the other hand, reports from American media, citing US officials, reminded that Israel had launched an attack on Iranian territories. The Iranian press also announced that explosions were heard in the northeast of Isfahan province, which hosts the Iranian Air Force Base.

While these developments raise concerns that tensions between Israel and Iran may escalate further, news flow on the issue remains the focus of investors.

As macroeconomic data continue to be announced in the USA, widening the expectations for the steps the Fed will take, tensions in the Middle East continue to fuel uncertainties, especially about commodity prices.

While significant progress needs to be made in combating inflation worldwide, there are fears that the tension in the Middle East may increase volatility in commodity prices and support inflationary pressures. However, concerns that the tension between Israel and Iran may escalate further are also seen as another factor complicating pricing by affecting the steps central banks will take.

With these developments, the 10-year bond yield in the USA completed the week with an increase of 10 basis points to 4.6260%.

The dollar index also ended the week at 106.1, just above last week’s level.

Expectations that economic activity will continue to remain strong worldwide continue to support copper prices, while copper libres, reaching the highest level in 2 years at $4.51, ended the week with a 4.6% increase at $4.48.

After the tensions eased in the Middle East and with the US petroleum stocks coming in above expectations, the barrel price of Brent crude oil fell by 3.4% to $86.6.

The ounce price of gold also rose by 2% on a weekly basis to $2,392, supported by the search for safe havens amid tension in the Middle East.

A muted trend was observed in the New York Stock Exchange

A muted trend was observed in the New York Stock Exchange this week with the announcement of macroeconomic data, strengthening expectations that the Fed will continue its cautious approach.

In the USA, industrial production increased by 0.4% on a monthly basis in March, parallel to market expectations. While the capacity utilization rate in the country increased by 0.2 points to 78.4% in the same period, it remained 1.2 points below the long-term average.

The number of new housing starts in the USA was 1,321,000 in March, while the number of building permits issued was 1,458,000, lower than market expectations. Housing starts in the country hit their lowest levels in 7 months in March, while building permits hit their lowest levels in 8 months.

The Philadelphia Fed Manufacturing Index in the USA rose to 15.5 in April, reaching its highest level since April 2022.

The index, which came above market expectations, indicated positive value for the third consecutive month, signaling continued expansion in the sector. Existing home sales in the country, however, fell by 4.3% in March, below expectations.

On the corporate side, Goldman Sachs, which released its balance sheet, reported a 16% increase in revenue and a 28% increase in net profit in the first quarter. The bank’s shares gained 3.7% this week following financial results that exceeded market expectations.

Shares of US electric vehicle maker Tesla, on the other hand, fell by 14% this week following news that it would lay off more than 10% of its employees.

In global smartphone sales, Samsung surpassed Apple with a 20.8% market share, while Apple shares fell by 6.5%.

However, as the earnings season continues in the USA, shares of Morgan Stanley rose by 5.2%, shares of Bank of America by 3.3%, and shares of Johnson & Johnson by 0.3% after their financial results were announced.

With these developments, the Nasdaq index fell by 5.52%, the S&P 500 index fell by 3.06%, and the Dow Jones index increased by 0.01% on the New York Stock Exchange.

Next week, the Purchasing Managers’ Index (PMI) for manufacturing industry, new home sales, Richmond Fed manufacturing index, durable goods orders, growth, wholesale inventories, weekly jobless claims, personal income and spending, and the University of Michigan Consumer Confidence Index will be followed.

European stock markets showed a mixed trend

A mixed trend was observed in European stock markets this week.

Statements by central bank officials stood out in Europe this week.

Christine Lagarde, President of the European Central Bank (ECB), stated in an interview during the Spring Meetings of the International Monetary Fund (IMF) and the World Bank that they were moving towards a more moderate tight monetary policy. Lagarde stated, “We observe a continuing disinflation process according to our expectations. We need to build a little more confidence in this disinflation process, but if it proceeds according to our expectations and we do not experience a major shock, we are moving towards a more moderate tight monetary policy.” Lagarde also mentioned that it is still early to review the bank’s inflation target.

ECB member Bostjan Vasle said that if everything goes as planned, interest rates could be close to 3% by the end of the year, while another bank member, Mario Centeno, said that even after lowering interest rates twice, the ECB would put pressure on the economy, but it was not necessary to rush to lower borrowing costs.

ECB Chief Economist Philip Lane stated that they would continue to follow an approach based on data to determine the appropriate level of tightening and duration, saying, “We are not committing to a specific interest rate path in advance.”

On the other hand, the euro/dollar exchange rate ended the week at 1.0660 with a 0.2% increase.

Andrew Bailey, Governor of the Bank of England (BoE), also stated in a statement during the Spring Meetings of the International Monetary Fund (IMF) and the World Bank that he expected inflation to approach the BoE’s target of 2% next month in the country.

In the Eurozone, the Consumer Price Index (CPI) increased by 2.4% annually in March, parallel to expectations, while inflation in the UK came in at 3.2% in the same period, exceeding expectations.

The alignment of inflation data announced in the Eurozone with market expectations was among the important factors increasing risk appetite in Europe.

With these developments, while the DAX index in Germany lost 1.08% this week, the FTSE 100 index in the UK lost 1.25%. In Italy, the MIB 30 index gained 0.46%, and in France, the CAC 40 index gained 0.14%.

Next week, the consumer confidence index in the Eurozone on Monday, manufacturing PMI in the Eurozone and Germany on Tuesday, and the Ifo Business Confidence Index in Germany on Wednesday will be followed.

Asian markets declined except for China

Sales pressure deepened in Asian equity markets with news flow regarding Israel and Iran.

While technology companies led the decline, the downward risk appetite was influenced by Taiwan-based semiconductor company TSMC revising its future expectations downwards despite announcing revenue and profit above expectations.

At the meeting attended by US Treasury Secretary Janet Yellen with the finance ministers of Japan and South Korea, the depreciation of the currencies of the two Asian countries was highlighted. With these developments, the dollar/yen pair completed the week with a 1% increase at 154.64, and the dollar/South Korean Won pair ended at 1,374.23, a 0.5% decrease.

Looking at the China side, while the country’s economy grew by 5.3% in the first quarter, higher than expectations, industrial production in March increased by 4.5% annually, and retail sales increased by 3.1%, both below expectations.

The data below expectations in the country indicated that the slowdown in economic activity continued, strengthening expectations for new support measures from the government to boost economic vitality.

China’s pledge to tighten stock listing criteria, end illegal stock sales, and strengthen control over dividend payments resulted in positive differentiation in the country’s equity markets.

On the other hand, according to data released in Japan, the CPI increased by 2.7% in March, parallel to expectations.

With these developments, the Nikkei 225 index in Japan lost 6.21% weekly, the Kospi index in South Korea lost 3.34%, and the Hang Seng index in Hong Kong lost 2.98%. In China, the Shanghai Composite index gained 1.52%.

Next week, the Tokyo CPI in Japan will be followed on Friday.

Focus on the Central Bank’s interest rate decision domestically

In the domestic market, the BIST 100 index on the Istanbul Stock Exchange closed the week with a 1.23% decrease at 9,693.46 points. The dollar/TL completed the week at 32.4205, 0.19% above the previous closing.

Mehmet Şimşek, Minister of Treasury and Finance, made evaluations regarding the Turkish economy at the Global Outlook Forum organized by the Institute of International Finance (IIF).

Şimşek stated that generally, markets and investors have begun to believe that inflation will decrease and the Medium-Term Program (MTP) will yield results. He stated:

“The outlook of investors towards Turkey has changed compared to last year. Last year, investors had doubts about deviating from orthodox policies, the possibility of not implementing the program. This year, there were almost no questions about this issue. In other words, there are no questions about the continuity of the program; questions are mostly about the details of the program.”

Fatih Karahan, Governor of the Central Bank of the Republic of Turkey (CBRT), speaking at the event titled “Central Bank Management in Emerging Markets” organized by the Peterson Institute for International Economics (PIIE) and the Council on Foreign Relations (CFR), said, “We have always signaled that we will do whatever is necessary. We have tightened much more than expected by the markets and showed how serious we are about disinflation.”

On the other hand, the World Bank stated that out of the new $18 billion package offered under the Country Partnership Framework (CPF) prepared for Turkey, approximately $12 billion would be for the private sector, and the remaining financing would be for addressing the wounds of last year’s earthquakes, increasing energy security, and addressing climate change-related issues.

Alfred Kammer, Director of the IMF’s European Department, expressed support for the reform program in Turkey, saying, “There is no discussion about any IMF program to support Turkey.”

Next week, the consumer confidence index on Monday, the housing price index, real sector confidence index, and capacity utilization rate on Wednesday, and the interest rate decision of the Central Bank of the Republic of Turkey (CBRT) on Thursday will be followed.

According to the expectation survey conducted by AA Finans, economists expect the Central Bank of the Republic of Turkey (CBRT) to keep the policy rate at 50%.

The median of economists’ year-end policy rate expectations was 45%.

Analysts noted that technically, the resistance levels for the BIST 100 index were at 9,700 and 9,800, while the support levels were at 9,400 and 9,300 points.

source: prepared by Melisa Beğiç

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