First, a weekly overview of the global market

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Behavior Review and Outlook

Periodic performance of major assets: Gold ＞ US Dollar ＞ US Debt ＞ US Stocks ＞ Hong Kong Stocks ＞ Crude Oil

Equities: As of Thursday, the S&P 500 fell for the fifth day in a row, influenced by strong retail sales reports, geopolitical conflicts, inflation and falling interest rate worries. The tech sector underperformed last week, and this cautious guidance from TSMC (NYSE: TSM) led to uncertainty about broader semiconductor demand in the coming months. The previous high-heat AI block has a larger margin of recent pullback, and future investors will also need to pay attention to the financial data of the giant Huawei (NASDAQ:NVDA), which may determine the further course of the AI segment.

Bonds: Treasury yields continued to rise last week, with 2-year yields hovering around 5%. The 10-year Treasury yield rose this month to an astonishing 4.70%, the highest level since early November 2023, under the combined effects of rising inflation, tough economic resilience and the Fed's expected rate cut correction. Federal Reserve Chairman Powell recently said that the latest economic data have not boosted people's confidence that inflation will soon approach the 2% target, adding to people's unease. Ales Koutny, head of interest rates at Vanguard International, thinks that a yield threshold above 4.75% could trigger a severe sell-off, potentially pushing rates to or above 5%, so is now in danger territory.

Crude Oil: Recent oil price volatility has been more volatile, with WTI rebounding from its highs last week from highs as of Friday to steady near $83 as of Friday, due to geopolitical influences, OPEC production cuts, and bullish bets on the oil options market. At the same time, Citi analysts believe that the steady rise in global oil inventories should lead to a drop in oil prices, and the recent strong trend in oil prices is a paradox.

USD: A number of Fed officials delivered hawkish messages, stressing that US inflation is too high and indicating that he does not currently think there is a need to cut interest rates immediately, causing the dollar to soar to near 106, hitting a new high since this year. FX Street believes that global central banks expressed dissatisfaction with the strong USD, causing traders to temporarily take profits, but a larger spread will still favor the USD by June or summer, pushing the DXY index higher again.

Gold: Gold prices rose as tensions in the Middle East increased, boosting gold's safe-haven properties. As of last Friday, gold prices soared to near $2,410 per ounce of gold. GOLD INVESTMENT SENTIMENT REMAINS HIGH TODAY, MAINLY DUE TO THE FOLLOWING FACTORS: INCREASED CENTRAL BANK PURCHASES, GEOPOLITICAL RISKS, THE FED IS STILL EXPECTED TO CUT INTEREST RATES, AND WESTERN INVESTORS WILL BEGIN TO LOOK FOR GOLD TO HEDGE THEIR PORTFOLIOS. VanEck Portfolio Manager believes gold prices are high, but investment demand has not even reached peak levels. Gold and gold stocks are expected to benefit further as more investors seek increased protection and diversification.

Note: The cyclical performance of large assets is sorted by the rise and fall of the asset cycles in the table above. “>” refers to the order of large to small; US bonds are sorted by the rise and fall of the futures price. Past earnings do not represent future returns.

Data source: Bloomberg

Second, Periodic Hotspot Topics

How are the global interest rate declines going?

1. Traders are betting the Fed will cut interest rates early

While investors and most analysts think the Fed's rate cut moves may be delayed again, interest rate futures traders are breaking with the current market consensus. Currently, traders in the interest rate futures market are betting heavily on the reverse, buying futures contracts with guaranteed overnight financing rates (which closely track the central bank's key policy rate) in December 2024, while selling contracts that expire in December 2025. Traders are betting that 2024 contracts will perform better than those in 2025, and SOFR spreads on Tuesday set a record.

Promising scenarios for the deal include the Fed cutting interest rates ahead of the November presidential election, with the rate cut exceeding the 40 basis points expected by the market for this year. That is to say, once the US economic data suddenly falls, the Fed will adopt aggressive monetary easing policies, which will bring a lot of return.

2. ECB likely to cut interest rates in June

The Swiss Federal Reserve opened a cycle of interest rate cuts for major central banks in March, and the next relay will likely fall into the hands of the ECB. At its meeting just ended in April, the European Central Bank held interest rates steady at an all-time high for the fifth time in a row, but hints that cooling inflation meant it could start cutting rates soon. European Central Bank policymaker François Villeroy de Galhau said last Thursday that the ECB should cut interest rates in June to avoid falling behind the inflation curve in June unless there is a major setback.

3. Interest Rate Drop Clues from the International Monetary Fund

The International Monetary Fund released its latest World Economic Outlook report on Tuesday, which gives a clear clue to the expected rate cuts that investors are watching around the world. We will split the report into the following three main points:

1. Global economic growth is slowing: According to the latest outlook from the International Monetary Fund, global economic growth remains resilient, with global economic growth expected to reach 3.2% this year, up from 3.1% forecast in January. Although global economic growth is expected to continue to expand steadily this year and next, by historical standards it remains weak and the medium-term outlook is the lowest in decades. In the United States, the IMF raised its growth forecast this year by 0.6% to 2.7%, higher than the Fed's 2.1% forecast. But growth is expected to slow to 1.9% next year as the fiscal tightening and weak jobs market lead to a slowdown in demand. In contrast, the recovery in the euro area is much slower, reflecting the long-term effects of high energy prices and weak productivity growth. Economic growth in the euro area is expected to recover from the low growth rate of 0.4% estimated last year to 0.8% this year and 1.5% in 2025.

2. Global Inflation Declines: Global headline inflation was 6.8% last year and is expected to fall to 5.9% this year and fall to 4.5% next year. The global decline was driven by a decline in so-called core inflation (i.e. commodity prices that do not include higher volatility in food and energy prices), while rising interest rates, weak employment markets and rising energy prices have also driven the decline. However, this prediction was made before Iran attacked Israel. The IMF warned in a report that any escalation in the Middle East conflict could change the trajectory of the situation.

3. Global central banks will open the way to lower interest rates: economic slowdown acts as a catalyst for central bank rate cuts, and on the other hand, the continued decline in global inflation is also a key point for opening rate cuts. The IMF's outlook for falling interest rates is not necessarily the same in different regions of the world. Differences in inflation and growth between the United States, Europe and other developed countries may mean that these regional central banks open a different timetable for rate cuts. The European Central Bank is expected to launch the first rate cut for the world's major central banks in June. While the US remains an uncertainty factor as inflation data is higher than expected, the economy appears unexpectedly resilient and investors continue to defer expectations of a rate cut. However, the IMF believes that by the fourth quarter of this year, the US Federal Reserve policy rate will fall from the current range of 5.25%-5.5% to 4.5% to 4.5%, implying three rate cuts. This exceeded the expectation of only two cuts in interest rates now thought by investors.

Third, outlook for important events in the future

GDP for the first quarter of 2024

The market will focus on first-quarter GDP released on April 25. Economists expect GDP to grow by 2% quarter-on-quarter, while down 3.4% from the previous quarter, still represents healthy economic growth. Recently, we have seen a series of strong economic data that will either support the GDP data for the first quarter to maintain healthy and solid growth.