Eurozone exits technical recession in Q1

The latest GDP print for the Eurozone suggests that the bloc exited a shallow recession in Q1 2024, with GDP growth increasing to 0.3% q/q. This outturn was higher than both the consensus expectation for growth of 0.1% and the downwardly revised -0.1% q/q growth seen in Q4. The better-than-expected growth was driven by stronger gains across the bloc’s largest four economies.

The pace of price growth in the Eurozone remained unchanged from March, at 2.4% y/y in April, in line with consensus expectations. The outturn in the headline measure was driven by energy prices, thanks to higher fuel and utility costs. Core CPI in contrast fell to 2.7% from 2.9% in March. There was also a notable decline in the pace of service inflation, which fell to 3.7% y/y from 4% in March.

Petrol prices in the UAE will be higher from today. The price of Special 95 petrol will rise 6.3% in May, to AED 3.22 per litre from AED 3.03 in April. Super 98 petrol prices will increase by just over 6% to AED 3.34 a litre, compared to AED 3.15 in April. This marks the fourth month in a row that petrol prices have headed higher, reflecting the uptick seen in oil prices in recent months. The recent hikes to fuel prices should exert upwards pressure on future CPI inflation prints given that transport accounts for 9.3% of the basket.

Markets will be looking ahead to the Fed’s interest rate decision, due later today. With a variety of inflation measures proving sticky, a still-strong labour market, and a bigger than expected rise in employment costs in Q1, we expect the FOMC to hold rates unchanged at an upper bound of 5.5% at today’s meeting. We recently revised our forecast, with rate cuts now expected to start in September (from June previously), with only two 25bps cuts this year (from three previously).

Today’s Economic Data and Events

• 16:15 US ADP employment change. Forecast: 180K
• 18:00 US JOLTS (Mar). Forecast: 8690K
• 18:00 US ISM manufacturing (Apr). Forecast: 50
• 22:00 US FOMC decision. Forecast: 5.5% (upper bound)

Fixed Income

• US treasury yields rose on Tuesday, as the quarterly employment cost index rose by more than expected in Q1. The 2yr yield rose by 6bps to reach 5.0351% and the 10yr gained 7bps to 4.6798%.
• European bond yields were also broadly higher on Tuesday, following news that the Eurozone existed a technical recession in Q1. The 10yr bund yield gained 5bps to 2.583%. The UK 10Yr gilt yield rose 5bps to reach 4.3458%.

FX

• The US dollar strengthened against a basket of peer currencies on Tuesday, with the dollar spot index gaining 0.6%, ahead of the FOMC meeting on Wednesday. EURUSD fell 0.5% to 1.0666 and GBPUSD declined by 0.6% to 1.2492. The Japanese Yen slid once again against the dollar, increasing 0.9% to reach 157.8.
• Commodity currencies were also weaker against the dollar on the day. AUDUSD fell 1.4% to 0.6473, NZDUSD declined by 1.5% to 0.5888, and USDCAD rose 0.9% to 1.3778.

Equities

• US equity indices fell sharply on Tuesday, with concerns about sticky inflation outweighing solid earnings results. The S&P 500 fell 1.57%, the NASDAQ dropped 2.04%, and the Dow Jones declined by 1.49%.
• European equities also fared poorly on the day. The Eurostoxx 50 fell 1.2%, while the CAC 40 and the DAX both declined by 1%. The FTSE 100 was broadly unchanged.
• Locally, the DFM fell 0.12% while the ADX declined by 0.1% on Tuesday.

Commodities

• Oil prices fell once more on Tuesday, amid signs of hope of a de-escalation in geo-political tensions. The latest API data showed US crude inventories rising by 4.91 m barrels last week. Brent futures dropped 0.61% to USD 87.86/b, while WTI declined by 0.85% to USD 81.93/b.