Market Flows and Economic Developments Amid Inflation Concerns
U.S. Large Cap Stocks Outflow: In a significant market movement, U.S. large cap stocks have experienced their largest weekly outflow since December 2022. According to Bank of America’s latest report using EPFR data, these stocks saw a substantial $15.8 billion exit in the week leading up to Wednesday. The total outflows from stocks amounted to $19.6 billion during the same period, influenced by a mix of Federal Reserve officials’ hawkish statements and rising oil prices, culminating in a market drop after unexpectedly high U.S. inflation data. Consequently, the Dow Jones Industrial Average is poised to end the week down by more than 1%.
U.K. Economic Outlook: Shifting to the U.K., there appears to be a silver lining as the economy edges towards recovery from its recent recession. The Office for National Statistics reported a modest 0.1% growth in GDP for February, with a revision of January’s figures showing an increase to 0.3% from 0.2%. This marks the second consecutive month of growth, suggesting a potential easing of the recession by the first quarter of 2024. Despite this progress, growth is expected to remain weak, influencing the Bank of England’s cautious stance on potential rate cuts.
Central Banks and Interest Rate Expectations: The landscape of central banking reveals a cautious approach to interest rate reductions across major economies. With the ECB anticipated to cut rates in June, followed by the Bank of England in August and the Federal Reserve in September, the focus remains sharply on monetary policy adjustments amid ongoing economic challenges.
Crude Oil Prices Amid Geopolitical Tensions: On the commodities front, crude oil prices experienced an uptick on Friday due to persisting geopolitical risks, particularly in the Middle East. However, both U.S. crude and Brent are on track for a weekly loss of about 1%. This downturn is largely attributed to the durable high inflation in the U.S., which suggests that the Federal Reserve may maintain higher interest rates for an extended period, dampening economic activity in the world’s largest economy.
Oil Demand Forecast: Adding to the complex global picture, the International Energy Agency (IEA) revised its oil demand growth forecast for the year downwards by about 100,000 barrels per day to 1.2 million barrels per day. The agency anticipates a further slowdown next year as the post-Covid-19 demand surge fades, projecting growth of just 1.1 million barrels per day.
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