Video Length: 00:05:38On the latest edition of Market Week in Review, Investment Strategist Alex Cousley and Sophie Antal-Gilbert, Head of AIS Portfolio & Business Consulting, discussed the latest U.S. Federal Reserve (Fed) and Bank of England (BoE) policy meetings. They also provided an update on fourth-quarter earnings season and assessed the 2024 economic outlook for China.Fed pushes back on notion of March rate cutAntal-Gilbert and Cousley opened the conversation by reviewing highlights from the Fed and BoE policy meetings, both of which took place the week of Jan. 29. Cousley said the key takeaways from both meetings were that monetary policy has peaked for the cycle and that rate cuts are on the way.Focusing on the Fed first, he said that Chairman Jerome Powell pushed back a bit on the idea of an initial rate cut in mid-March, noting that U.S. central bank officials want to make sure inflation is continuing to decline before starting to lower borrowing costs. “Prior to Chair Powell’s Jan. 31 remarks, markets had moved toward the idea of the Fed cutting rates in mid-March. In the wake of his comments, markets now think a first rate cut in May is more likely,” Cousley stated, noting that investors are pricing in a cumulative 145 basis points of easing by the end of 2024.In his opinion, these expectations are reasonable if the U.S. economy is able to achieve a soft landing—where economic growth cools but a recession is avoided. However, Cousley stressed that he believes the —and that if one were to strike, further rate cuts would be likely. Because of this potential for , Cousley sees U.S. government bonds as an attractive opportunity for investors.Shifting to the BoE, Cousley said the UK central bank will probably trail the Fed in slashing rates, with . “Inflation is still a bit higher in the UK than in the U.S., which is why I think the BoE will lag the Fed, but rate cuts in the UK are on the horizon for this year,” he stated. Cousley added that the European Central Bank (ECB), which met last week, is also , perhaps sometime in the spring.The early read on Q4 earnings season in the U.S., Europe and JapanThe discussion pivoted to corporate earnings, with Antal-Gilbert asking Cousley how fourth-quarter earnings season is shaping up in the U.S. and elsewhere. Cousley said that generally speaking, the season has been faring OK in the U.S., with some disappointing results in the financial sector but strong results from a few big tech companies, including Amazon and Meta.”Both of these companies reported better-than-expected Q4 earnings, which led to a big rally in share prices,” he remarked, noting that Amazon stock rose nearly 5% in after-hours trading on Feb. 1, while Meta stock jumped by 14%.On the contrary, shares of New York Community Bancorp () plunged the week of Jan. 29 after the bank—which purchased some of the assets from Signature Bank after it failed during last March’s banking crisis—reported a large fourth-quarter loss, Cousley said. He explained that NYCB has a large exposure to the .”At Russell Investments, we’ve spoken to our underlying money managers about NYCB’s woes, and right now, they see this as an idiosyncratic issue specific to NYCB, rather than part of a broader risk to regional banks,” Cousley remarked.He said that outside of the U.S., fourth-quarter earnings season is still in the early stages, but that so far, the story has been less positive. Japan has had some decent beat rates but also some big misses, Cousley explained, while European corporate earnings have generally been on the disappointing side.Unpacking China’s 2024 growth outlookAntal-Gilbert and Cousley wrapped up the segment by assessing the 2024 growth outlook for China, with Cousley noting that the latest PMI (purchasing managers’ index) readings from the country’s services sector came in better than expected.Cousley stated he expects in China this year, which he said would be a fairly good outcome for the world’s second-largest economy. However, he stressed that will likely be needed in order for this type of growth to be achieved. “There have been some headlines from China recently about an economic stimulus package and cuts to its reserve requirement ratio, but these types of things aren’t enough to really get the economy moving,” Cousley remarked.He noted that in March, China’s national legislature will convene, with the government set to announce its GDP target for the year. “If that number comes in above 4.5%, I believe China will really need to inject some serious stimulus into its economy in order to kickstart growth for this year,” Cousley concluded.More By This Author:Private Markets Outlook: Rapid intensificationWhen Could Rate Cuts Begin In Canada And Europe? A U.S. Recession Looks Less Likely This Year. But The Risks Are Still Elevated.
