In the United States, inflation fell slightly again in April, with an annual increase of 4.9% (against 5.0% in March), the least significant since April 2021. This is good news for the US economy, especially as the underlying index (which excludes energy and food) experienced an identical trajectory, falling to 5.5% (compared to 5.6% in March).
While they were the main culprits at the beginning of the inflation wave experienced by most Western economies, energy prices are currently the main deflation factor, falling by 5.1% over one year. Excluding energy supply rose by 6.8%, food by 7.7%, housing by 8.1% and transport services by 11%.
It is, therefore, difficult to say that inflation is under control. Nevertheless, it is moving in the right direction, and markets are happy with it, anticipating a less restrictive monetary policy. The US 10-year rate fell from around 3.5% to 3.4% following the publication of this figure. In the equity markets, the tech stocks - most dependent on the cost of credit - performed the best, with the Nasdaq at its highest point since June.
Investors continue to calculate that Fed policy rates will fall by 0.75% later in the year, hovering around 4.5% at the end of 2023. If we think that the Fed’s rates are indeed at a peak, we also believe that the decline in key rates will be less rapid and less pronounced than expected - unless the discussions around the US debt ceiling do not succeed. This would result in increased volatility in debt markets.
Since the scenario of a well-being economy is not compatible with a rapid fall in key interest rates, turbulence in the equity markets is, therefore, to be expected, either because the economy is doing well and hopes of lower rates are disappointed, either because the economy is facing significant turbulence (widening the banking crisis or not lifting the debt ceiling) and rates then start to fall.
We expect the US economy to survive in 2023, with key interest rates stable at their current levels. Nevertheless, we continue investing in U.S. equities and bonds across our portfolio.
Financial advisory in the US
The United States (US) are a benchmark in terms of capital market investors. Both for social security and welfare grounds, which obliges practically every American citizen to prepare their retirement. A reality way far from other countries in the world.
During the month of May, Euroconsumers Invest brings back its Money Framework to help investors better understand how the markets oscillates in the current times.