Ella 
Markets are expected to open on a positive note this week, driven by gains in global stock markets last week, stabilizing foreign exchange markets and a general decline in global yields. This sets the stage for a possible rally in Asian stock markets.
After falling in April, stocks rebounded in the second half of last week. Better earnings, especially from Apple, and a less hawkish tone from the Federal Reserve than initially expected support this view.
Additionally, weak U.S. employment data provided further impetus to stocks, with the S&P 500 notching its best performance since February 22 on Friday. The report showed that non-agricultural employment increased slightly by 175,000 in April, and the unemployment rate rose slightly to 3.9%. It is worth noting that wage growth has been slower than expected, with average hourly wage growth falling to an annual rate of 3.9%, the lowest level in the past three years. That went a long way to easing inflation concerns that dominated markets earlier this week.
While significant declines in overall nonfarm payroll employment sometimes portend economic hardship, the recent decline is not catastrophic by any means. With few in the market screaming for a recession, stock and bond traders can only interpret the data on an optimistic note, pushing indexes higher and yields lower. Slowing wage growth and a slight rise in unemployment may ease some concerns the Federal Reserve has about cutting interest rates this summer. Key labor data was unexpectedly weak, providing policymakers with a much-needed boost.
It’s been a relatively quiet week for U.S. data, so investors may need to wait until next week’s U.S. inflation data to determine whether the troubling inflation trend in the first quarter was indeed misleading before investors can fully turn the tables and put the 2024 outlook on track. Inflation concerns are forgotten.
In the second half of this year, if data supports it, the Federal Reserve will be inclined to cut interest rates. The Fed’s goal seems to be to avoid a recession as much as possible. However, once economic momentum begins to shift, the economy could deteriorate rapidly, so the Fed may be forced to cut interest rates rather than implement an “insurance rate cut.
While it is clear that hard economic data remains resilient, survey-based economic data deteriorate over time and tend to remain weak ahead of “hard” data releases, suggesting that while the economy remains resilient for now, caution is still necessary.
Essentially, there are growing signs of labor market rebalancing, with softer consumer and business survey data pointing to an impending slowdown in consumer and business spending growth in the coming months.
That slowdown could hamper companies’ ability to maintain the pace of price increases seen earlier this year, putting pressure on their profits. This situation may not bode well for stocks, especially if U.S. employment data continues to decline, as consumers have been a key factor in driving stronger U.S. corporate profits.
Given the likelihood of more global supply chain disruptions and energy shocks, the direct link between inflation and consumer inflation is not immediate or clear-cut, that said, the potential for a rebalancing trend in recent data still suggests the Fed may be Cut interest rates this summer.
