Markets were jittery early in the day on Wednesday as investors awaited the fallout from one of Taiwan’s most significant earthquakes since 1999. This seismic event reverberated through global markets due to Taiwan’s critical position in the semiconductor supply chain, with housing tech giants like Taiwan Semiconductor Manufacturing Co. being a major chip supplier to industry giants such as Apple and Nvidia. However, despite the brief halt in production TSMC and other major semiconductor firms appear to be relatively unscathed.
Looking to China, the General Manufacturing Purchasing Managers’ Index (PMI) surged to 51.1 in March from the previous month’s 50.9, exceeding market forecasts of 51. This robust expansion marked the fifth consecutive month of growth in factory activity, propelled by increased new orders domestically and internationally. Additionally, sentiment among manufacturers improved to its highest level since April 2023, fuelled by optimism surrounding the anticipated uptick in manufacturing activity amid brighter forecasts for the global economic outlook.
Meanwhile, the US saw a notable uptick in its manufacturing Purchasing Managers’ Index (PMI), climbing to 50.3 in March 2024 (above the 50 threshold indicating expansion) up from February’s 47.8. This marked a crucial turning point for the sector growing for the first time in 1-1/2 years. While the resurgence in manufacturing bodes well for the economy’s growth prospects, the accompanying increase in raw material costs raises concerns about potential goods inflation in the coming months.
In contrast, markets reacted positively to a deceleration in the growth of the services sector. The non-manufacturing Purchasing Managers’ Index (PMI) dropped to 51.4 in March from 52.6 in February, below economists’ expectations of a rise to 52.7. However, attention quickly turned to Federal Reserve Chair Jerome Powell’s speech at Stanford, where he downplayed the recent uptick in inflation and labour market data, stating that this recent data does not “materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labour market, and inflation moving down towards 2% on a sometimes bumpy path.” He also reiterated that the strength of the economy means policymakers have time to let the incoming data guide decisions on policy and maintained the outlook that policy will loosen later this year, positive news for markets.
European markets edged higher following the release of preliminary data indicating Eurozone inflation rose by 2.4% year-on-year in March, below expectations and February’s figure of 2.6%. The core rate, excluding volatile items like food and energy, also fell short of expectations at 2.9%. While this data signalled progress in steering inflation towards the 2% target, immediate rate cuts are deemed unlikely at the upcoming European Central Bank (ECB) meeting on the 11th April. Markets have priced in a June rate cut despite commentary from President Christine Lagarde last month who stated that “By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid”. The ECB has said it needs to see essential wage data from the early part of the year before it is comfortable easing policy. As we have mentioned previously, markets get ahead of themselves, overexcited about the prospect of rate cuts, however they could be setting themselves up for disappointment given the data-dependent stance.
Still to come this week, the Shanghai stock exchange is closed Thursday and Friday in observance of national holidays, US non-farm payrolls and unemployment rate, as well as Eurozone retail sales and UK PMI are also on the agenda.
Kate Mimnagh, Portfolio Economist
