This week just ended

With much of the county still finding and finishing off various Easter eggs hidden throughout their houses from the weekend, where better to start than in the home of chocolate, Switzerland.

In 1875, a Swiss confectioner, Daniel Peter, developed the first solid milk chocolate using condensed milk, which had been invented by his neighbour, a certain Henri Nestlé, finally getting the ingredients correct to achieve both the texture and flavour we know today. It seems that all the ingredients are also present for lower inflation in Switzerland now too, with data from Wednesday showing price rises easing to their lowest level in two-and-a-half years. Consumer prices rose by 1% from March 2023, the lowest rate since September 2021 and down from 1.2% in February, becoming the 10th month running that inflation has come within the Swiss central bank’s 0-2% target range.

Also famous for their highly precise timepieces, those in Switzerland and in mainland Europe were all watching for the latest Services Purchasing Manager Index (PMI) figures, released on Thursday. Whilst Switzerland’s neighbour, Germany’s, business activity stabilised in March, ending a five-month sequence of contractions in the sector, it was here in the UK that the economy that was putting in the extra hours.

It seems as if it won’t be any time at all before the domestic economy exits the recession it fell into during the second half of 2023 as corresponding data showed British businesses faring better than most of their peers on the continent. Thursday's figures showed that services activity grew in March with a reading of 53.1, putting the dominant sector firmly in still in expansionary territory.

With more tools at their disposal than a Swiss army knife, the US Federal Reserve reportedly appear to have a wait and see approach regarding their fight against inflation, refusing to commit to a date or time to begin cutting rates. Amongst a slew of Federal Reserve officials speaking during the middle of the week was the bank’s Chair, Jay Powell. He commented that "recent readings on both job gains and inflation have come in higher than expected," in a speech to the Stanford Graduate School of Business. While policymakers generally agree that rates can fall later this year, he said this will happen only when they "have greater confidence that inflation is moving sustainably down" to the Fed's 2% target.

Staying in the US, there was also a slew of employment data for economists to whittle their way through. Data throughout the week pointed to several holes developing in the persistently strong American labour market, not as many as in a block of Swiss Cheese but enough for the US Federal Reserve to take note when deciding their rate cut trajectory. A report on Thursday showed that U.S. layoff announcements rose 7% during March, to the highest since January last year, led by technology and government-sector job cuts. Employers most frequently cited cost-cutting and restructuring efforts as reasons for job eliminations, with many companies appearing to be revert to a ‘do more with less’ approach.

The US labour market was very much the theme for the final days of the week as the first Friday of the month signalled, one of the Federal Reserve’s favoured pieces of employment data, Non-Farm Payrolls, totalling the number of Americans who joined the jobs market over the previous month. The numbers came in well ahead of expectations, with 303K Americans gaining employment over the month, compared to just the 212K anticipated, also seeing a drop in unemployment from 3.9% to 3.8%. Although the strong numbers push back hopes of an imminent rate cut in the US, they do show that the world’s largest economy remains strong in the face of multiple headwinds, which, like our friend the Swiss flag itself, is a big plus…

This coming week

The first working week for a while brings with it a busy week for economists, with thoughts drifting towards what a potentially pivotal second quarter of 2024 has in store.

Saying this, it won’t be until the middle of the coming week that the box office data comes our way, as the US Bureau for Labor Statistics releases its inflation figures, a release so important to financial markets that will be analysed the world over. With expectations increasingly being pushed further back as to when the US Federal Reserve will begin its rate cutting cycle, the inflation reading could prove crucial in their thinking and could well set the tone for months to come. The reading itself will come in two parts, Core and Headline, with Core stripping out more volatile areas of the reading, such as food and energy, to give a truer reflection of price rises over the specified periods.

The data should go hand in hand with minutes released from the Federal Reserve later that day, detailing their most recent meeting, providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates when they last convened.

Staying with the theme of central banks, the European Central Bank (ECB) is due to hold a press conference on Thursday, setting out its rate decision for the bloc. The bank is highly anticipated to leave borrowing costs where they are for this month, with markets pricing in a strong possibility that they will begin their rate cutting cycle in June. So, whilst no move is expected, the bank’s forward guidance will be heavily scrutinised by traders to see if the ECB will follow through on the cuts they have heavily inferred will be coming.

The coming week will be wrapped up on domestic shores, with the Office national Statistics releasing the UK’s Gross Domestic Product (GDP) figures on Friday. Acting as the broadest measure of economic activity and the primary gauge of an economy's health, the data measures the change in the total value of all goods and services produced by a country, making the announcement hugely important. With the UK having fallen into a technical recession at the end of last year, as measured by two consecutive declines in quarterly GDP, this coming week’s monthly reading should be key in understanding if the UK is bouncing back quickly, before we receive the official quarterly reading next month.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used, you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 05 April 2024.