The Fed meets this week, the money markets now anticipate four rate drops of 25 bp this year – against three before – although no decline is expected for this Wednesday.
The main global scholarships ended the week in the green, carried by hopes of appeasement on the commercial front thanks in particular to the concessions made by the Trump administration on customs duties in the automotive sector and the possible opening of negotiations with China. The solid results of Meta and Microsoft also contributed to the bullish momentum, compensating for the darker prospects of Apple and Amazon. But behind this apparent upturn, alert signals accumulate, especially in the United States, where economic dynamics arouse growing stagflation fears.
The Fed is under the spotlight
The American gross domestic product contracted 0.3% in the first quarter, in reverse of expectations that were tabbling on a slight growth. At the same time, the GDP price index has climbed 3.7%, its highest level since August 2023. This combination of negative growth and high inflation is a real headache for the Fed, especially since the labor market sends contradictory signals. If the creations of non -agricultural jobs exceeded expectations in April (+177,000), private sector figures have been disappointing and the unemployment rate remains stable at 4.2%. In addition, the contraction of public employment and the reduction in business forecasts illustrate a climate of great uncertainty.
In this context, Fed’s monetary policy is more than ever under the spotlight. President J. Powell, faithful to his prudent line, seems to want to wait for a lasting confirmation of the economic slowdown before acting. However, political pressures are intensifying, while President Trump pushes for rate drops to support an economy losing speed. Consumer confidence has dropped, major shopping projects are frozen and the dollar has lost 8% (against CHF) since January.
The FED meets this week, the money markets now anticipate four rate drops of 25 bp this year – against three before – although no decrease is expected for this week. On the taxation side, Trump’s recent promise to eliminate taxes for Americans earning less than $ 200,000 per year arouses skepticism and concern, in a context of growing public deficit and insufficient customs revenue.
Trade tensions weigh on the Chinese economy
In China, manufacturing activity has greatly fell, a sign that Sino-American tensions weigh heavily on the second world economy. In Europe, if growth was slightly surprised in the first quarter (+0.4%), activity should remain sluggish in the coming months, undermined by global uncertainty.
In this context, rates at US 10 years have stretched at 4.30% and the German Bund at 2.51%. On the equity side, the S & P500 index ended the week up 2.92%, the NASDAQ increased by 3.45%and the Stoxx Europe 600 of 3.07%.
The essential in brief
