Weekly Wrap: Glimmer of Hope - Week Ending May 10

Market Movers  

• Cooling off. While US growth data has remained firm, yesterday’s soft labor market data reignited hope that the Federal Reserve may cut rates this year. Initial jobless claims hit an eight-month high of 231K, and coupled with last week’s softer payroll report, could point to a cooling labor market. The market is pricing in 41 basis points of cuts for 2024. Ten-year US Treasury yields ended the week at 4.5%
  
  
• Buybacks season. Now that over 80% of S&P 500 companies have reported earnings, analysts are shifting their focus to buybacks. The buyback window is expected to run through June 14, and roughly 92% of companies will be in their open window by this weekend. After a large tech company announced a $110 billion buyback last week, positive buybacks sentiment rose, with strong earnings growth as a tailwind. Equity volumes, on the other hand, slipped. Thursday was the year’s lightest US equity notional session, with only 9.8 billion shares traded across all exchanges. As of writing, the S&P 500 and Nasdaq ended the week +1.8% and +1.1%, respectively.
  
  
• Seeing green. Hong Kong equities gained 2.6% this week following reports that mainland China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong-listed stocks bought through Stock Connect. 
   

Macro

• Sooner rather than later. The Bank of Japan’s April meeting revealed a more hawkish tone as members consider the possibility of earlier rate hikes. Board members think monetary policy normalization could accelerate if “underlying inflation continues to deviate upward from the baseline scenario against the backdrop of a weaker yen.” 
  
  
• Domino of cuts. The Bank of England kept rates unchanged at 5.25% (a 16-year high) at Thursday’s meeting, expressing progress toward a first potential cut in June. BOE Governor Andrew Bailey said he was “optimistic that things are moving in the right direction.” On Friday, new data revealed the UK’s Q1 gross domestic product grew 0.6%, pulling it out of a shallow recession. On Wednesday, Sweden's Riksbank became the second G10 central bank to begin cutting after Switzerland, reducing its key rate to 3.75% and raising expectations that the European Central Bank will also trim rates next month. 
  
  
• Wait and see. Economists are focused on next week’s consumer price index and producer price index reports, which will provide further guidance for the Fed's rate path. This week’s Fed comments still showed hesitation toward cuts. Boston Fed President Susan Collins said policy likely needs to stay at current levels until inflation is moving “sustainably” toward the 2% target, while Minneapolis Fed President Neel Kashkari said he couldn't rule out a rate hike and anticipates rates will remain at current levels for an “extended period.”