Week #26 — Market Update for June 24-28, 2024

Executive Summary

U.S. Stock Market: The major U.S. stock indexes posted slight mixed movements, with the Nasdaq Composite performing better due to the significant presence of the Magnificent 7, particularly Tesla. Tesla shares rose by 8.1% over the week despite the absence of any news. Tesla is expected to experience significant stock volatility as investors brace for three key events over the next six weeks: second-quarter delivery results, earnings reports in late July, and the unveiling of its self-driving vehicle, or robotaxi, in early August. Options trading data from Citigroup Inc. indicate that investors are positioning for a potential 15% move in either direction through mid-August.

Small-cap stocks showed interesting dynamics. Despite minimal movements in large- and mid-cap segments, this asset class displayed broad growth due to significant undervaluation and lackluster year-to-date returns. According to J.P. Morgan, high-quality smaller-cap stocks now trade at a near-record valuation discount versus their large-cap peers, despite having similar cash flows and profit margins. In 2024, the S&P SmallCap 600 Index has lost 0.7%, contrasting with a 15.3% gain for the S&P 500.

Cryptocurrencies: Bitcoin continues to decline, losing about 20% from its March high. Bitcoin's dominance in the cryptocurrency market is being challenged by Ether and Solana as interest shifts towards these smaller digital assets. Solana saw its biggest surge in over a month following VanEck's application to launch an ETF for the token. Meanwhile, Ether is outperforming Bitcoin this year, with final approvals for Ether-focused funds potentially coming soon.

Global Stock Markets: Globally, stock markets posted mixed movements, with the Japanese market contributing to positive dynamics in the global ex-US index. Amid growing political instability worldwide, Japanese stocks seem attractive to investors as the country has seen an unprecedented number of tourists and welcomed the yen’s considerable depreciation.

GDP Forecasts: The New York Fed Staff Nowcast model slightly upgraded its U.S. GDP growth forecast for Q2 2024 to 1.93% from 1.89% a week ago, as positive surprises from disposable income and PCE price data were offset by a negative surprise from housing data. Meanwhile, the Atlanta Fed's GDPNow revised its estimate sharply downward to 2.2% from 3.0%, almost closing the gap between the two similar metrics.

Monetary Policy: Market expectations for the Federal Reserve's actions have evolved slightly. The likelihood of a rate cut in September has declined to 70.3% from 72.3% a week ago. Traders have revised their projections for 2024's monetary easing to 34 basis points, down from 36, implying one certain rate cut in September or November and about a 35% probability of a subsequent cut in December.

Bond Market: The long-term part of the U.S. Treasury yield curve shifted upward, with 10-year bond yields increasing by 11 basis points to 4.36% and 30-year bond yields increasing by 12 basis points to 4.51%. Most of this movement occurred on Friday and can be attributed to the presidential debate outcome. Barclays’ strategists suggest that the market should anticipate higher-than-target inflation in the coming years, as Trump’s proposed policies are expected to worsen the federal deficit and add stimulus to the economy.

For comprehensive insights and a deeper understanding of these developments, readers are encouraged to refer to the full article.

US Stock Market

The major U.S. stock indexes posted slight mixed movements, with the Nasdaq Composite performing better due to the much higher share of the Magnificent 7 in general and Tesla in particular. Tesla shares rose by 8.1% over the week despite the lack of any news. Overall, Tesla is set to experience significant stock volatility as investors brace for three key events over the next six weeks: second-quarter delivery results, earnings reports in late July, and the unveiling of its self-driving vehicle, or robotaxi, in early August. Options trading data from Citigroup Inc. indicate that investors are positioning for a potential 15% move in either direction through mid-August.

Meanwhile, interesting dynamics have been shown by small-cap stocks. Despite minimal movements for large- and mid-cap segments, this asset class displayed broad growth. This can be attributed to significant undervaluation and lackluster returns year-to-date. According to J.P. Morgan, high-quality smaller-cap stocks now trade at a near-record valuation discount versus their large-cap peers, despite having similar cash flows and profit margins. In 2024, the S&P SmallCap 600 Index has lost 0.7%, contrasting with a 15.3% gain for the S&P 500.

Bitcoin continues to decline, losing about 20% from its March high. Bitcoin's dominance in the cryptocurrency market is being challenged by Ether and Solana as interest shifts towards these smaller digital assets. Solana saw its biggest surge in over a month following VanEck's application to launch an ETF for the token. Meanwhile, Ether is outperforming Bitcoin this year, with final approvals for Ether-focused funds potentially coming soon.

In terms of sector performance, only four out of eleven sectors showed positive dynamics.

The Fear & Greed Index, which measures market sentiment, increased to 44 from 41 a week ago.

The SPY ETF, which tracks the S&P 500 Index, hovers near its peak, indicating potential for a pullback.

Global Markets

Global stock markets once again posted mixed movements, with the Japanese market contributing to the global ex-US index showing positive dynamics. Amid growing political instability worldwide, Japanese stocks seem attractive to investors as the country has seen an unprecedented number of tourists and welcomed the yen’s considerable depreciation .

The ACWX ETF, representing the MSCI All Country World Index excluding the USA, remains in the range between two moving averages, touching both during the week.

Economic Indicators, Statistics and News

Several important macroeconomic indicators and economic news were published during the week:

Global

·????? In a crucial presidential debate, President Joe Biden's performance raised significant concerns about his age and fitness for office, exacerbating Democratic worries about his ability to defeat Republican Donald Trump in the upcoming election. Biden, 81, struggled throughout the debate, making numerous misstatements, coughing frequently, and displaying a lack of energy and clarity. His weak showing prompted alarm within the Democratic Party, with some members questioning whether he should remain in the race. Despite his shaky performance, Biden insisted he would stay on the ticket.

Trump capitalized on Biden's missteps, maintaining a composed demeanor and effectively attacking Biden on issues like immigration, the US's withdrawal from Afghanistan, and inflation. While Trump also made several false claims and controversial statements, his performance was viewed as stronger, especially by a focus group of undecided voters, most of whom leaned towards Trump after the debate.

The debate had immediate market implications, with the dollar strengthening against major currencies like the Mexican peso and the Japanese yen, reflecting investor sentiment that Trump was "winning" the debate. Economic issues were a central focus, with Biden incorrectly citing figures related to job creation (15,000 jobs were created during his presidency, instead of 15 million) and drug cost caps, which further undermined his credibility.

Biden attempted to land blows on Trump by highlighting his legal troubles, including his conviction for falsifying business records related to a hush-money payment. However, Biden's own struggles with delivering a coherent message overshadowed these attacks. The debate also touched on critical issues like abortion, veterans' care, and the Israel-Hamas conflict, with Biden aiming to defend his policies and criticize Trump's record.

Public reaction within the Democratic Party was mixed, with some prominent figures defending Biden's performance while others privately expressed concern. The debate highlighted the challenges Biden faces in convincing voters of his capability to serve another term, with his age and health being central issues. As the campaign progresses, Biden's ability to address these concerns will be crucial in determining his electoral prospects.

David Axelrod, a former campaign strategist for Barack Obama, indicated that Biden's performance has led to renewed internal discussions about whether he should continue his campaign. Historical precedent exists, as President Lyndon Johnson chose not to seek re-nomination in 1968 due to mounting Vietnam War protests. However, Biden has already secured enough delegates for the nomination, making it challenging to remove him from the ticket.

Biden's minimal opposition in the primaries and the loyalty of pledged delegates complicate any efforts to replace him. Any challenger would need to announce candidacy before the formal vote, posing a high-stakes challenge to the incumbent. The Democratic National Committee had planned an early roll call to secure Biden's nomination ahead of the convention, but if Biden were to step down afterward, the decision to replace him would fall to the DNC members. This would also create logistical issues with printed ballots already bearing Biden's name.

Potential successors include Vice President Kamala Harris, California Governor Gavin Newsom, Illinois Governor J.B. Pritzker, and Michigan Governor Gretchen Whitmer. However, none have polled better against Trump than Biden, according to a Bloomberg News/Morning Consult poll of seven battleground states.

Financial considerations also play a crucial role. Biden’s campaign and the Democratic Party had $212 million in cash on hand as of May, funds that would be available to Harris if she took over. Other candidates would likely need to start fundraising from scratch. Additionally, the campaign has already spent about $346 million on Biden’s re-election efforts, and selecting a new candidate would necessitate further spending to introduce them to voters.

US

·????? Wide-ranging economic data illustrate a deceleration in US growth over the first half of the year, driven by the Federal Reserve’s prolonged high borrowing costs and persistent inflation. Personal spending, the main driver of the economy, was revised down by half a percentage point to an annualized 1.5% in the first quarter. Real GDP increased at an annual rate of 1.4% in the first quarter of 2024, a significant slowdown from the 3.4% growth in the fourth quarter of 2023. This upward revision from the previous estimate of 1.3% was primarily due to downward revisions in imports and upward revisions in nonresidential fixed investment and government spending.

The depletion of pandemic savings cushions, which had supported American consumer spending amidst high prices and borrowing costs, is contributing to a decline in consumer spending power. According to the Federal Reserve Bank of San Francisco, the roughly $2 trillion in excess savings accumulated during the pandemic was fully depleted by March. This leaves consumers more dependent on current income, which is closely tied to the labor market. As consumer spending adjusts, household debt has reached record levels, with more Americans falling behind on credit card payments. The savings rate has fallen, and a third of households recently reported difficulty in meeting usual household expenses.

Similarly, various metrics of consumer sentiment showed negative dynamics. US consumer confidence experienced a decline in June due to a more muted outlook on business conditions, the job market, and incomes. The Conference Board's sentiment gauge dropped to 100.4 from a downwardly revised 101.3 in May, aligning closely with economists' median estimate of 100. Expectations for the next six months decreased by nearly 2 points to 73, while the assessment of present conditions improved slightly. Despite the dip, consumer confidence remained within a narrow range observed over the past two years as the current labor market strength continued to counterbalance future concerns. Only 12.5% of consumers expect business conditions to improve in the next six months, the lowest since 2011.

Meanwhile, consumer sentiment, measured by the University of Michigan, also declined in June, though by less than initially estimated, reaching 68.2, up from the preliminary reading of 65.6. This exceeded economists’ median estimate of 66. Consumers’ inflation expectations for the next year decreased to an annual rate of 3%, down from 3.3% in May and the lowest in three months, with similar expectations over the next five to ten years. Preliminary figures were 3.3% and 3.1% respectively.

·????? The Federal Reserve’s preferred measure of underlying US inflation, the core personal consumption expenditures (PCE) price index, decelerated in May, increasing by 0.1% from the previous month, marking the smallest advance in six months. On a two-decimal basis, it rose by just 0.08%, the least since late 2020. Year-over-year, both the headline and core PCE price indexes increased by 2.6%. Real consumer spending grew by 0.3% month-over-month, driven by goods, and fueled by a rise in incomes, with wages and salaries increasing by 0.7%. Real disposable income jumped by 0.5%, the most since January 2023. Despite this, Bloomberg Economics expresses skepticism about the persistence of this disinflation process due to sticky core services categories.

·????? Home-price gains in the US decelerated in April as prospective buyers faced higher mortgage rates, leading to a pullback from the market. A national measure of home prices increased by 6.3% from a year earlier, down from a 6.5% rise in March, according to S&P CoreLogic Case-Shiller data. Despite the slowdown, national home prices reached a record high, based on over two decades of data. In a measure of 20 cities, prices rose by 7.2% in April, slightly lower than the 7.5% increase in March. San Diego saw the largest annual price gain at 10.3%, while Portland, Oregon, experienced the smallest at 1.7%.

New-home sales in the US declined in May, impacted by elevated prices and mortgage rates. Sales of new single-family homes dropped by 11.3% to a 619,000 annual pace, the lowest since November, according to government data. This decline was observed across all major US regions, indicating limited market momentum due to affordability challenges. The median sale price of a new home fell by 0.9% year-on-year to $417,400 in May, while the supply of available homes increased to 481,000, the highest since 2008.

The US pending existing-home sales index dropped unexpectedly in May to its lowest level on record, as high mortgage rates and prices discouraged buyers. The index of contract signings from the National Association of Realtors fell by 2.1% to 70.8, the lowest reading in data going back to 2001. This was contrary to economists’ expectations of a 0.5% gain. The rise in inventory coupled with lower demand suggests an easing of home price appreciation in the coming months. Despite this, closings on previously-owned homes have remained near an annualized 4 million for over a year, partly due to the lock-in effect, where sellers are reluctant to list their homes and lose their current low mortgage rates. Pending-sales figures typically lead to sales of previously-owned homes, as houses go under contract one to two months before they are sold.

Mortgage rates in the US fell for the fourth consecutive week, with the average 30-year fixed loan rate at 6.86%, the lowest in about three months, according to Freddie Mac. Despite the slight decrease from 6.87% the previous week, rates remain close to 7%, which contributed to the decline in new home sales in May and a decrease in transactions of previously-owned properties for the third straight month. Sam Khater, Freddie Mac’s chief economist, stated that the economy is in good shape by historical standards, and rates are expected to continue decreasing over the summer, potentially bringing more homebuyers back into the market.

·????? The New York Fed Staff Nowcast model slightly upgraded its U.S. GDP growth forecast for Q2 2024 to 1.93% from 1.89% a week ago, as positive surprises from disposable income and PCE price data were offset by a negative surprise from housing data. Meanwhile, the Atlanta Fed's GDPNow revised its estimate sharply downward to 2.2% from 3.0%, almost closing the gap between the two similar metrics.

Europe

·????? French and Spanish inflation slowed in June, reinforcing the European Central Bank’s decision to begin cutting record-high interest rates. Consumer prices in France, the euro area's second-largest economy, rose by 2.5% year-on-year in June, down from 2.6% in May, according to the Insee statistics agency. This figure matched the median estimate of economists surveyed by Bloomberg.

Similarly, inflation in Spain showed signs of retreat, with price gains moderating to 3.5% from 3.8%, aligning with expectations, although underlying inflationary pressures remained steady. In Italy, inflation saw a slight uptick but remained below 1%. Bloomberg Economics’ Nowcast for the eurozone indicates a bloc-wide inflation reading of 2.4% for June, down from 2.6% in May.

A survey from the European Central Bank suggested that the decline in prices might continue, with inflation expectations among eurozone consumers decreasing. Expectations for inflation over the next 12 months fell to 2.8% from 2.9% in April, marking the lowest level since September 2021, and expectations for the next three years dropped to 2.3% from 2.4%.

·????? Germany's economic outlook is facing renewed challenges as recent data indicates setbacks across various sectors. The Ifo institute’s expectations gauge fell to 89 in June from 90.3 in May, contrary to analysts’ expectations for an improvement. This decline, particularly driven by negative data from the manufacturing sector, suggests that the gradual recovery in Europe’s largest economy is encountering obstacles. Despite a stable measure of current conditions, firms in the manufacturing sector report that order backlogs are becoming a significant issue. Retail data also indicate that the anticipated rebound in consumption, driven by rising wages, has not materialized.

Consumer sentiment is set to fall slightly in July, ending a four-month streak of rises. The consumer sentiment index, published by GfK and the Nuremberg Institute for Market Decisions, fell to -21.8 from a revised -21.0 in June, defying analysts’ expectations for a rise to -18.9. This decline underscores the uncertain outlook for consumers amid higher prices and a sluggish economy. Income and economic expectations both decreased, while the willingness to buy remained stagnant at a low level, and the willingness to save increased slightly.

The labor market in Germany is also showing signs of strain. The number of unemployed people increased by 19,000 in seasonally adjusted terms in June, surpassing analysts’ expectations of a 15,000 rise. This pushed the seasonally adjusted jobless rate up to 6.0% from 5.9% in May. Companies remain cautious in their hiring practices, with 701,000 job openings reported in June, 69,000 fewer than a year ago. The Federal Labour Office highlights the continued weakness in the labor market as economic challenges persist.

·????? Britain’s economy rebounded from recession more swiftly than initially estimated, posting the strongest growth in over two years, largely driven by services and consumer spending. The Office for National Statistics reported that GDP expanded by 0.7% in the first quarter, revised up from an initial estimate of 0.6%. This upward revision exceeded most economists’ expectations, who had not anticipated any change.

Services output saw a notable increase of 0.8%, revised up from 0.7%, ending three consecutive quarters of decline. This growth was driven by professional services and scientific research and development, along with stronger trade and consumer spending. On a per capita basis, GDP per head rose by 0.5%, revised up from 0.4%, marking a sharp recovery after seven quarters of stagnation, though it remains 0.6% below its level from a year ago. Living standards in the UK also improved for the second consecutive quarter, reaching their highest level since late 2021. Adjusted for inflation, household disposable income per person increased by 0.5%, up from a 0.4% gain in the previous quarter, driven by rising wages and decreasing taxes.

Asia

·????? Inflation in Tokyo accelerated in June, driven by higher energy prices, with consumer prices excluding fresh food rising 2.1%, up from 1.9% in May, surpassing the consensus estimate of 2%. These figures are early indicators for the national data to be released in July and suggest a potential interest rate hike by the Bank of Japan (BOJ) as early as July. The increase was influenced by policy changes, including the phase-out of utility subsidies and the introduction of a renewable energy levy, which raised prices, while an education support program had a mitigating effect. Excluding energy and fresh food, the inflation gauge rose to 1.8% after nine months of deceleration.

Several factors could continue to elevate prices. The yen's recent depreciation to a 38-year low is expected to drive cost-push inflation through more expensive imports. Government officials have hinted at possible interventions to stabilize the currency. Additionally, income tax rebates issued in June are likely to boost disposable incomes, potentially leading to increased consumer spending. Household spending has already shown signs of recovery, with a notable rise in April for the first time in 14 months.

Wage growth is another factor supporting inflationary pressures. Recent wage negotiations resulted in a more than 5% increase, the largest in over three decades, driven by a tight labor market. The jobless rate remained steady at 2.6% in May, with a jobs-to-applicants ratio of 1.24, indicating a high demand for labor.

Consequently, inflation expectations in Japan rose to their highest since at least 2004, with the 10-year breakeven rate reaching 1.598%, the largest gap on record. This surge reflects investor expectations of rising living costs and adds to the argument for the BOJ to raise interest rates, possibly in its next policy meeting on July 30-31. One-third of economists surveyed by Bloomberg anticipate a rate hike next month, alongside a potential roadmap for quantitative tightening.

·????? China's fiscal revenue declined at the fastest pace in over a year, prompting speculation about a possible mid-year budget revision to support economic recovery. Total revenues for January to May fell by 4.1% to 11.36 trillion yuan ($1.6 trillion), the largest drop since February 2023. Concurrently, spending decreased by 2.2% to 13.61 trillion yuan, resulting in a fiscal shortfall of 2.25 trillion yuan. The slowdown in economic growth and a prolonged property market downturn have significantly impacted tax income and land sales revenue, leading local governments to intensify tax collection efforts. To mitigate financial strain, the government has accelerated bond sales, with economists advocating for an increased budget deficit and additional sovereign debt issuance to sustain recovery.

Meanwhile, China’s industrial companies experienced a modest profit increase in May, with large firms' profits rising by 0.7% year-on-year, compared to 4% in April. Industrial firms’ slight earnings improvement in May was helped by higher commodity prices, which helped mining companies reduce their profit decline from 18.6% to 16.2% over January-May. Despite this improvement, challenges remain due to overcapacity in manufacturing and reluctance among consumers and companies to spend amidst the property downturn and deflationary pressures.

The Conference Board Leading Economic Index (LEI) for China fell by 0.5% in May to 150.0, continuing the downward trend from March 2022. Over the past six months, the LEI declined by 1.7%, slightly less than the previous period's 1.9% contraction. Depressed consumer expectations, low profitability in industrial enterprises, and weak manufacturing PMI have contributed to the decline. The six- and twelve-month growth rates remain weak, suggesting sluggish growth momentum and recession risks ahead. Despite these challenges, public stimulus is expected to support economic activity in the latter half of the year, with the Conference Board forecasting a 5.0% GDP growth in 2024.

China's export outlook is set to improve, bolstering growth in the world's second-largest economy even as consumer spending slows, according to a Bloomberg survey of economists. Exports are anticipated to increase by 4.3% this year from the previous year, a notable rise from the 2.8% growth forecasted in May. Consequently, China's economy is projected to expand by 5%, up from the 4.9% predicted in May, based on the median estimates from 68 economists. This positive trend is attributed to a shift in global demand towards goods and the competitiveness of Chinese producers. However, risks from trade barriers imposed by the US and Europe are increasing. While the property sector continues to drag down economic growth, stronger export momentum provides some support.

·????? India's economic indicators are showing positive trends, with significant growth observed in multiple sectors. The Conference Board Leading Economic Index (LEI) for India increased by 1.2 percent in May 2024, reaching 158.8 (2016=100), recovering from two consecutive contractions of 0.4 and 0.3 percent in March and April. Over the six-month period from November 2023 to May 2024, the LEI rose by 2.9 percent, up from 2.3 percent in the previous six months. According to Ian Hu, Economic Research Associate at The Conference Board, almost all components contributed positively to the LEI, with bank credit to the commercial sector being the largest contributor, followed by merchandise exports and the real effective exchange rate (REER). Notably, all components, except the REER, have shown an increase over the past six months, indicating sustained growth momentum throughout 2024. The Conference Board forecasts India to remain the fastest-growing major economy in 2024, with an annual GDP growth rate of 6.9 percent.

In line with these positive indicators, Reserve Bank of India (RBI) Governor Shaktikanta Das emphasized that India's economic growth is approaching 8% sustainably, provided inflation is kept under control. Speaking at the Bombay Chamber of Commerce and Industry, Das highlighted that India is on the brink of a significant structural shift in its growth trajectory. He noted that the economy had grown at an average of 8.3% over the past three years, contributing 18.5% to global growth in 2023-24. The RBI is confident about its 7.2% growth projection for the current financial year starting in April, citing strong growth momentum. Rural consumption is on the rise, and a good monsoon forecast bodes well for agriculture. Furthermore, higher global trade volumes are expected to boost demand for Indian goods and services.

Although economists expect India’s economy to slow to 7.0% and 6.7% in the current and next fiscal years, according to a Reuters poll, the slight decline is attributed to weakened consumption and statistical discrepancies fading. Despite the BJP's loss, no significant policy shifts are anticipated as the government retains most ministers, continuing to prioritize GDP growth through government capital spending.

Foreign Exchange Markets

The Dollar Index, which reflects the value of the US dollar against a basket of major currencies, gained 0.1% over the week.

Commodities and Energy Markets

In the commodities sector, the majority of assets ended the week with negative movements.

Debt and Fixed Income Markets

Market Movements

According to CME data, the implied Fed Funds rate curve for the next 18 months (until December 2025) has remained largely unchanged.

The long-term part of the U.S. Treasury yield curve shifted upward, with 10-year bond yields increasing by 11 basis points to 4.36% and 30-year bond yields increasing by 12 basis points to 4.51%. As most of this movement took place on Friday, it can be attributed to the presidential debate outcome. Barclays’ strategists suggest that the market should anticipate higher-than-target inflation in the coming years, as Trump’s proposed policies are expected to worsen the federal deficit and add stimulus to the economy.

Central Bank Insights

·????? The Bank of Japan (BOJ) board members are considering an interest rate hike as inflation risks become more apparent, according to a summary from the June policy meeting. One member emphasized the need to closely monitor data and suggested raising the policy interest rate if necessary. This points to the possibility of a rate hike at the next meeting on July 30-31, despite some market watchers doubting such a move due to the planned detailed announcement on reducing bond purchases.

The summary indicated that prices might rise above the baseline scenario if recent cost increases are passed to consumers again, necessitating adjustments to monetary accommodation for risk management. However, there were also cautious opinions regarding a rate hike, especially considering Japan’s recent economic contraction and weak consumer spending. The BOJ is set to specify plans for cutting bond buying next month, marking its first step toward quantitative tightening (QT).

A Bloomberg survey of economists showed that one-third expect the BOJ to raise its interest rate in July while also detailing the roadmap for QT. About 33% of 43 economists forecast an upper bound rate hike from 0.1% at the July 31 meeting. The likelihood of a July hike was initially thought to be diminished when the BOJ postponed QT details to July, but some economists argue that delaying monetary adjustments due to rising inflation risks would be costly.

·????? The European Central Bank (ECB) is navigating a complex landscape of potential inflation shocks and economic uncertainties as it considers future monetary policy adjustments. Executive Board member Isabel Schnabel emphasized the need for flexibility in interest rate decisions due to possible new price shocks and geopolitical risks. She highlighted that while goods inflation is declining, services inflation remains persistent, necessitating a data-dependent approach.

Investor expectations align with the prospect of the ECB further loosening monetary policy, with some analysts predicting two more rate cuts this year and borrowing costs dropping to as low as 2.25% by 2025. Governing Council member Olli Rehn indicated that these expectations are reasonable, contingent on the continued progress of the disinflationary process toward the ECB’s 2% target.

Chief Economist Philip Lane reinforced the ECB’s commitment to being agile in response to new economic data, ready to adjust policy based on upside or downside surprises. Governor Fabio Panetta of Italy argued for a gradual normalization of monetary policy, suggesting that recent concerns about sticky services costs might be overblown and that patience is needed to address the final phase of inflationary pressures.

Governing Council member Francois Villeroy de Galhau urged caution against overreacting to volatile inflation data, advocating a balanced approach that considers long-term projections over short-term fluctuations. Villeroy emphasized the importance of pragmatic gradualism in the ECB's policy approach.

Conversely, Austrian central banker Robert Holzmann expressed concerns about underestimating inflation's persistence, stressing the risks of moving too quickly in reducing rates. Holzmann warned that premature rate cuts could reignite inflation, necessitating further hikes and creating market instability.

·????? The Federal Reserve is grappling with a complex economic landscape as it navigates the appropriate course for monetary policy. Key policymakers have expressed varied views on the timing and necessity of interest rate adjustments, reflecting the nuanced state of the U.S. economy.

Mary Daly, President of the Federal Reserve Bank of San Francisco, emphasized the labor market's nearing inflection point, warning that further slowing could lead to higher unemployment. Daly highlighted the need for conditional policy, adjusting rates based on how inflation and the labor market evolve. She acknowledged recent encouraging inflation data but stressed the importance of remaining vigilant.

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, expressed cautious optimism about inflation cooling, indicating that while a rate cut's timing remains uncertain, policymakers must balance the risk of maintaining excessively high rates against the potential economic slowdown.

Federal Reserve Governor Michelle Bowman reiterated the need to keep borrowing costs elevated due to various upside risks to inflation. She pointed out that reducing rates too soon could lead to a rebound in inflation, necessitating further rate hikes. Bowman's comments underscore the Fed's cautious stance amid persistent inflationary pressures.

Lisa Cook, another Federal Reserve Governor, suggested that while it will be appropriate to reduce interest rates eventually, significant progress on inflation is needed first. Cook anticipates gradual improvements in inflation this year, with more rapid progress expected in 2025.

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, maintains his view of a potential rate cut in the fourth quarter, contingent on continued inflation decline. Bostic emphasized the importance of patience and vigilance in achieving the Fed's 2% inflation target, noting plausible scenarios for both rate cuts and hikes based on evolving data.

Thomas Barkin, President of the Federal Reserve Bank of Richmond, highlighted the resilience of the U.S. economy, particularly its consumer sector, despite high interest rates. Barkin remains open to the idea that the long-run neutral rate might have shifted up, suggesting that current policy may not be as restrictive as perceived. He stressed the need for continued work to combat inflation, without providing specific guidance on future rate cuts.

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