Markets dip amid concerns that the Fed could defer interest rate cuts

Market commentary

Friday saw a decline in European stocks as risk sentiment remained subdued amid increasing concerns that the Federal Reserve (Fed) could hold off on interest rate cuts for longer than expected, however, losses were countered by gains in telecommunication stocks. The pan-European STOXX 600 index ended the session 0.20% lower but registered its eighth consecutive week of gains, supported by a slew of upbeat corporate updates and expectations of interest rate cuts from the European Central Bank.

US markets fell on Friday after a series of negative data released last week undermined expectations for earlier Fed rate cuts. Furthermore, with various central bank decisions under the spotlight, Wall Street suffered its second weekly drop in more than four months. Central banks in the US, UK, Japan, Australia, and Mexico are all expected to announce interest rate decisions later this week.

Asian stock markets were mostly downbeat on Friday reflecting Wall Street's losses overnight after the latest US producer inflation report came in hotter-than-expected. However, losses were allayed by gains in Chinese stocks after the People’s Bank of China rolled over ¥387 billion worth of one-year medium-term lending facility loans in March 2024, but kept the rate at 2.50% as expected, in an attempt to stabilise the yuan.

The FTSE/JSE All Share Index reflected a cautious tone in global markets as traders analysed a mixed bag of economic data on Friday. The local bourse fell almost 1% for the week as investors considered how the data, which points to US inflation remaining elevated, would affect the Fed's monetary policy trajectory. The focus now turns to this week's monetary policy meetings and the release of South Africa's consumer price inflation data on Wednesday.

Brent crude fell to settle at $85.34 per barrel on Friday afternoon, securing an over 3% gain for the week. Trading Economics explained that the gain was fuelled by “strong US demand and a more optimistic outlook for global oil consumption. Recent data from the International Energy Agency revealed a surprise decline in US crude inventories, dropping by 1.536 million barrels last week instead of the expected 1.338 million barrel increase. The EIA also revised its 2024 global oil demand forecast upward to 1.3 million barrels per day, from the previous estimate of 1.2 million bpd, and adjusted its projection for this year to a slight deficit instead of a surplus. Oil prices were also supported by Ukrainian drone attacks on Russian refineries, causing a fire at Rosneft's largest refinery. Also, ongoing geopolitical tensions in the Middle East and the decision by OPEC+ to extend supply cuts further contributed to the strength in oil prices.” Bullion held steady near $2 160 an ounce on Friday, on track for its first weekly decline in four, amid Fed rate cut uncertainty.