Powell dovish despite strong economy

25 March 2024


  • Dovish stance of major DM central banks sets markets on fire
  • Economy strong, US manufacturing on track to spur recovery
  • Bottoming commodities not a good omen for future inflation

The major indices made new all-time highs for the week led by US equities, in a rally driven by growing expectations of central bank cuts. The US markets and technology outperformed strongly as Jay Powell delivered a reassuring message of easier policy and manageable inflationary pressures, treasury yields fell, and the economy continued to perform better than expected. Elsewhere investors were positively surprised by a rate cut, as in Switzerland, or welcomed higher odds of future easing, as in the UK, or took in their stride a very gradual approach to hikes, as in Japan. The Reddit IPO, the announcement by Nvidia of a new more powerful chip, and Micron spectacular results further stoked animal spirits.

Advance business confidence surveys for March were constructive on both sides of the pond. They confirmed a manufacturing recovery in the United States, and the exit from recession in the UK, though only marginal improvements in the eurozone. China delivered a sizeable positive surprise, with fixed asset investments and industrial production well above forecasts. Overall, improving economic momentum should translate into better earnings in the following quarters, in turn stoking more risk taking.

The US dollar strengthened despite the widespread risk-on mood and Fed officials confirming three rate cuts for the year. We think that investors must be expecting a shallow easing cycle based on the stronger growth and inflation forecasts in the Fed’s Summary of Economic Projections. Risk taking will have to come alongside staying vigilant on the outlook for inflation.

Have a great week.

Powell dovish despite strong economyc

Cross-asset Update

Markets are galvanized by the expectation that the major central banks will be adding to liquidity. The Fed reassured investors confirming the plan for three more rate cuts by year-end, the Bank of Japan failed to significantly tighten financial conditions in its shift to positive policy rates, while the Bank of England warmed up to the idea of some prospective easing. And the PBOC has been easing for a while, trying to lay more solid foundations for a struggling recovery. The coming liquidity deluge will put a floor to stock prices and potentially propel them higher, despite already elevated valuations. The Fed stands apart in its determined dovishness despite the strength of the economy even as Fed officials pay lip service to the fight against inflation. Improved financial conditions will be a boon across asset classes, spurring animal spirits and eventually economic activity.

More liquidity should further boost the manufacturing cycle, the missing link in the ongoing US recovery. The S&P Global US Manufacturing Index has been in expansion territory for three back-to-back months now, and elevated levels of the forward-looking ratio of new orders to inventories suggest that more of the same should be in store for the coming months. In turn, more industrial activity should increase demand for materials, and indeed commodity prices are stabilising with copper making new highs for the year. The more cyclical equity pockets are finally making up for some of the lost ground, indicating that a broadening of the rally from IT to cheaper sectors is underway. Also, in China there seems to be the first signs that fiscal stimulus is starting to reverberate across the economy, and mainland stocks are now rebounding forcefully in line with the Goldman Sachs China Fiscal Index inflecting higher. Gold promptly reacted to the pleasing message of central banks by recording new all-time highs. But we feel that yellow metal has overshot its policy drivers by discounting a large number of Fed cuts that might not come to pass in the next twelve months, hence consolidation could be overdue.

What is good for risk assets may not be as good for the Treasury market. For now, investors are following the disinflationary route indicated by moderating price pressures and are not demanding a positive term premium on longer-dated Treasuries. In other words, markets are not yet discounting worsening inflation as a direct consequence of swelling liquidity. But that could change, as rising commodity prices usually lead inflation higher. Overall, it seems to us that central banks are laying the foundations not only for the continuation of the rally in risk assets, but also for the reawakening of inflation. But this is a story for another time and focus on more upside potential in equities is well deserved.

Powell dovish despite strong economyc

Powell dovish despite strong economyc

Powell dovish despite strong economyc

Fixed Income Update

Last week, front-end yields fell 12-14bp and the broad curve steepened as the market interpreted the FOMC’s updated projections and chair Powell’s press conference as pointing toward a dovish reaction function. Overall, last week’s meeting supports the view that the Fed will initiate a gradual pace of easing in June/July to give them enough time before the US elections. The outcome of the FOMC meeting risks a shallower easing cycle. What took us by surprise was that even though the Fed increased their inflation expectations for the year to 2.6%, there wasn’t any significant change in the Dot Plot projections. It gives more weight to the argument that 3% is the new 2%.

BoE held its rate intact but removed the tightening bias from its wordings. After cooler inflation data last week from the UK, Retail Sales surprised on the upside. Excluding automotive fuels, retail sales volumes rose 0.2% m/m in February. We believe the current consensual view that central banks move in the same direction is mistaken. BoJ removed NIRP and YCC, raising the policy rate for the first time in 17 years. But markets took it as a dovish hike. Swiss central bank beat ECB to become the first DM central bank with a rate cut last week to check the strength of its currency and succeeded in the endeavour.

Corporate credit spreads narrowed to the tight end of their recent ranges. The Bloomberg Barclays Global Agg credit spreads currently trade around 91 bps. The issuance pace has slowed in March and typically April is one of the slowest issuance months in the last 4 years with below $100bn issued on an average. Meanwhile, demand remains robust with 20 consecutive weeks of inflows into IG funds according to JPM. That should provide technical support for spreads. High Yield/ IG spread differential is at its lowest since Sep 2022. With 15 defaults in February, the 2024 global corporate default tally rose to 29, the highest year-to-date default count since 2009. However, reading between the lines, the last 12-month default rate is still at only 3.88% which doesn’t set off any alarm bells.

The issuance from the GCC region has been strong this year with more than $34bn till date, which is over 50% of last year's total issuance. Demand remains high resulting in negligible new issue premium and pricing towards the lower range. Today, we have seen mandate announcements from the Commercial Bank (CBO) for a 5-year senior unsecured bond and the inaugural sukuk issuance from Mubadala for a 10-year tenor. The CBQ bond is expected to be priced around 110-120 basis points over the treasury, while the Mubadala sukuk is expected to be priced around 5%, with an issuance size of $1bn.

Powell dovish despite strong economyc

Powell dovish despite strong economyc

Equity Update

Over the past five months, the MSCI All Country World Index is up ~20% with the rally broadening away from tech to industrials and energy. Many factors are at work, easier financial conditions, higher valuations and earnings growth upgrades, with AI-driven productivity gains seen across industry.

A good week for markets with all major regions except China, gaining. New highs in many markets, in a rally driven by growing expectations of central bank cuts, with the first DM Central Bank to cut the SNB. Fed Chair Powell’s commentary of easier policy and a resilient economy led to lower treasury yields and supported the view that lower inflationary trends are in place. The US and technology sector outperformed. The S&P 500 rose 2.3%, and the Nasdaq by 2.9%, last week, both are c.+10% YTD and outperforming small cap stocks. Eurozone equities ended the week flat. The ARK Invest report on global GDP increasing by $40tn by 2030 with a boost from AI was much in the news. We still see upside on a strategic perspective from AI adoption into industry, but not at the exponential levels like last year.

Our year end fair value for the Topix is 2650 and we are trading 5% above that but remain overweight Japan equities. At the opposite end of the DM Central Bank dovish tilt, BOJ Governor Ueda tightened policy for the first time in 17 years. ETF purchases ended. Equity markets took the change in stride, and the yen weakened, and Japan equities rose 4% last week. Japan is the best performing large market YTD. There is a push for companies to improve shareholder returns from the Tokyo Stock Exchange. Signs that deflation has ended/ growth upgrades are boosting equity sentiment, while a weakening yen continues to boost exporters like Toyota. A broad rally and if Japanese companies increase wages, people’s purchasing power will increase, and that will benefit domestic demand companies too.

Emerging markets (+0.5%) lagged developed markets (+2%) last week with GCC equities up and India flat. China had a negative week. Dubai's latest IPO Parkin traded +35% on debut. News on Bloomberg that LuLu, one of the region’s largest hypermarket chains, has appointed banks for an IPO and Abu Dhabi’s IHC plans to list a AED100bn holding firm, 2PointZero, by 2025.

We remain neutral China with performance still negative YTD. Data is improving with fixed asset investments and industrial production growth above forecasts. Overall, improving economic momentum should translate into better earnings in the following quarters.

Social network Reddit debut on Wall Street saw it surge 48% in its first day of trading, as its AI pitch got a warm reception. The company is entering licensing agreements to allow AI technologies to use its data for model improvement. The announcement by Nvidia of a new more powerful chip has taken the stock up to an 11th week of gains, +90% YTD. CEO Huang announced Blackwell graphics processing units that would massively increase the computer power of large language models. Micron +18% last week, led a rally in semiconductor shares, beating Q1 estimates and guiding above expectations. Its high-bandwidth memory DRAM chips have been sought amidst an AI infrastructure spending boom.

Powell dovish despite strong economyc

Powell dovish despite strong economyc

Powell dovish despite strong economyc

Written by:


This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), licensed and regulated by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“SCA”) and subject to regulation, supervision and control of the Central Bank and SCA, having its head office at Baniyas Road, Deira, PO Box 777, Dubai, United Arab Emirates. This document may be distributed and/or made available by the Bank and its affiliates and subsidiaries, including Emirates NBD Capital KSA CJSC (“ENBD Capital”) (through its website, its branches or through any other modes, whether electronically or otherwise).

Emirates NBD and its affiliates, subsidiaries and group entities, including its shareholders, directors, officers, employees and agents are collectively referred to Emirates NBD Group.

Any person (hereinafter referred to as “you”, “your”) who has received this document or have access to this document shall acknowledge and agree to the following terms.


Data/information provided in this document are intended solely for information or illustrative purposes and are not designed to initiate or conclude any transaction.

This publication may include data/information taken from stock exchanges or other third-party sources from around the world, which Emirates NBD reasonably believes to be reliable, fair and not misleading, but which have not been independently verified. The provision of certain data/information in this publication may be subject to the terms and conditions of other agreements to which Emirates NBD is a party. Opinions, estimates and expressions of judgment are those of the writer and are subject to change without notice. Emirates NBD or any member of Emirates NBD Group makes no representation or warranty and accepts no responsibility or liability for the sequence, accuracy, completeness or timeliness of the information or opinions contained in this publication. Nothing contained in this publication shall be construed as an assurance by Emirates NBD that you may rely upon or act on any information or data provided herein, without further independent verification of the same by you.

The contents of this document are prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors, including those relevant to the determination of whether a particular investment activity is advisable. Emirates NBD does not undertake any obligation to issue any further publications or update the contents of this document. Emirates NBD may also, at its sole discretion, update or change the contents herein without notice. Emirates NBD or any member of Emirates NBD Group does not accepts no responsibility whatsoever for any loss or damage caused by any act or omission by you as a result of the information contained in this publication (including by negligence).

References to any financial instrument or investment product in this document are not intended to imply that an actual trading market exists for such instrument or product. Certain investment products mentioned in this document may not be eligible for sale in some jurisdictions, and they maynot be suitable for all types of investors. The information and opinions contained in this publication is provided for informational purposes only and have not been prepared with any regard to the objectives, financial situation and particular needs of any specific person, wherever situated. If you wish to rely on or use the information contained in this publication, you should carefully consider whether any investment views and investment products mentioned herein are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You should also independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professional advisers or experts.


This publication may be provided to you upon request (and not for distribution to the general public), on a confidential basis for informational purposes only, and is not intended for trading purposes or to be passed on or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal.


None of the content in this publication constitutes a solicitation, offer, recommendation or opinion by Emirates NBD to buy, sell or trade in any security or to avail of any service in any jurisdiction. This document is not intended to serve as authoritative legal, tax, accounting, or investment advice regarding any security or investment, including the profitability or suitability thereof and further does not provide any fiduciary or financial advice. This document should also not be used in substitution for the exercise of the prospective investor’s judgment.

Third Party

This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is the responsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publication may not be conveyed to or used by a third party without the express consent of Emirates NBD or its affiliates, subsidiaries or group entities distributing this document. You should not use the data in this publication in any way to improve the quality of any data sold or contributed by you to any third party.


Notwithstanding anything to the contrary set forth herein, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from this publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity or strategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before entering into any transaction, prospective investors should: (i) ensure that they fully understand the potential risks and rewards of that transaction; (ii) determine independently whether that transaction is appropriate given an investor’s investment objectives, experience, financial and operational resources, and other relevant circumstances; (iii) understand that any rates of tax and zakat or any relief in relation thereto, as may be referred to in this publication may be subject to change over time; (iv) consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment; (v) understand the nature of the investment and the related contract (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk; and (vi) understand any regulatory requirements and restrictions applicable to the prospective investor

Forward Looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. The information contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.


Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records. The use of this publication is at the sole risk of the investor and this publication, and anything contained herein, is provided "as is" and "as available." Emirates NBD makes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of investment products mentioned in this document may neither be capital protected nor guaranteed and the value of the investment product and the income derived therefrom can fall as well as rise and an investormay lose the principal amount invested. Investment products are subject to several risks factors, including without limitation, market risk, high volatility, credit and default risk, illiquidity, currency risk and interest rate risk. It should be noted that the value, price or income of securities denominated in a foreign currency may be adversely affected by changes in the currency rates. It may be difficult for the investor to sell or realise the security and to obtain reliable information about its value or the extent of the risks to which it is exposed. Furthermore, the investor will not have the right to cancel a subscription for securities once such subscription has been made. Prospective investors are hereby informed that the applicable regulations in certain jurisdictions may place certain restrictions on secondary market activities with respect to securities.

Before making an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment. In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and such others. All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties.

Except as specifically permitted in writing, you should not copy or make any use of the content of this publication or any portion thereof or publish, circulate, reproduce, distribute or offer this publication for sale in whole or in part to any other person over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet or construct a database of any kind. Except as specifically permitted in writing, you shall not use the intellectual property rights connected with this publication, or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose. This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. By accepting this publication, you agree not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose of any information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, you should not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you, except as otherwise provided with Emirates NBD’s prior written consent. You shall have no ownership rights in and to any of such items.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the London branch of Emirates NBD Bank (P.J.S.C) which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by Emirates NBD Bank (P.J.S.C) outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returns or income set out within this publication.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singapore branch of Emirates NBD Bank (P.J.S.C) which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank (P.J.S.C) outside Singapore will not be regulated by the MAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns or income set out within this publication. Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate. For contact information, please visit www.emiratesnbd.com.


Emirates NBD Capital KSA CJSC (“ENBD Capital”), whose registered office is at P.O. Box 341777, Riyadh 11333, Kingdom of Saudi Arabia, is a Saudi closed joint stock company licensed by the Saudi Arabian Capital Market Authority (“CMA”) under License number 37-07086 dated 29/08/2007G (corresponding to 16/08/1428H) to deliver a full range of quality investment products and related support services to individuals and institutions in the Kingdom of Saudi Arabia. ENBD Capital is subject to Capital Market Law, and Implementing Regulations in the Kingdom of Saudi Arabia

ENBD Capital’s contact details are T +966 (11) 299 3900 and F +966 (11) 299 3955.

This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Funds Regulations issued by the Capital Market Authority.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective subscribers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities offered. If you do not understand the contents of this document, you should consult an authorised financial adviser.