Portfolio Update – April 2024

This month has certainly been anything but dull. Within just a few weeks, the market shifted from anticipating rate hikes and worrying about corporate earnings’ decline, to pricing in rate cuts and celebrating robust results.

In fact, the ongoing earnings season is progressing remarkably well, demonstrating strong cost control and returns for shareholders. However, there are concerns about the ROI from AI spending, which has fallen short of expectations: indeed, while it’s crucial for companies to have an AI strategy, there is no need to overspend on it, especially when cash offer returns exceeding 5% risk-free. Moreover, much of the hype surrounding AI has faded, as the actual productivity improvements have been relatively modest despite being nearly two years in already: while many AI tools are quite impressive, if you’ve marketed your investments as the construction of the Matrix, it’s clear that delivering only smart assistants or media generation tools will lead to disappointment.

Now, let’s move to macro.

United States

The month started with the ISM PMI showing that both manufacturing and services were expanding, with manufacturing moving back into expansionary territory for the first time since September 2022. However, that didn’t last long. Indeed, later in the month the manufacturing PMI fell back into contractionary territory. The prices paid also increased, and between the hot inflation print and the contractionary headline, the word “stagflation” started to get used once again. However, I’d argue that the relationship between ISM prices paid and the CPI/PPI is very weak, so I wouldn’t use those as a reason to be concerned.

The Q1 advanced GDP also supported the fears of US stagflation, as the rate of headline GDP growth eased to 1.6% from 3.4%, well below the 2.4% forecast, while Core PCE surged to 3.7% from 2.0%.

However, despite the novelty of the word and the persistent desire to justify a pessimistic outlook, I find the use of “stagflation” in this context rather puzzling. Stagflation typically entails three key elements: sluggish economic growth, soaring inflation, and high unemployment rates. And we have none. While recent growth figures have fallen short of expectations and are projected to decline further in the upcoming quarter (my estimate being 1.1-1.3%), they hardly align with the stagnant growth characteristic of stagflation. I wouldn’t characterize current inflation levels as particularly high, especially given my lack of anticipation for a second wave, though I acknowledge there may be differing views on this. Finally, unemployment is currently at historically low levels, which directly contradicts the fundamental definition of stagflation.

In my view, it’s essential to adhere to the precise meanings of words, and if one claims we are presently experiencing a stagflationary environment, it implies one of two things:

  • Either they’re alleging that government data is misleading, suggesting that both unemployment and inflation rates are significantly higher than officially reported. However, if this viewpoint is adopted, it undermines the basis for any data-driven discussion, prompting the question of why one would place such importance on data accuracy.
  • Alternatively, they’re expecting meaningful changes in growth, unemployment, or inflation over the next few weeks. The reason for the time constraint is that there is a lag between the current moment and the data on it: if one chooses to discard this temporal limitation, it indicates either a skepticism towards the present existence of a stagflationary scenario, or simply a penchant for contrarianism or biased narrative-driven arguments.

Moving to inflation, the concerns of another round of inflation were calmed down with the release of the PCE, which rose 0.3% MoM and 2.8% YoY. While this may temper the hawkish sentiment, it still exceeds the Federal Reserve’s comfort zone. Moreover, it signals a halt in the downward trajectory of core inflation observed over the past two years.

However, as mentioned above and contrary to prevailing expectations, I remain unconvinced of a second-wave of inflation as several factors suggest otherwise: wage growth is diminishing (see my earlier tweet), the money supply indicates further downward pressure on headline inflation (see Fabian Wintersberger’s tweet), and analysis of rental inflation suggests a bias towards moderation. On top of these factors, corporate inflation expectations are also declining (see my earlier tweet), and we know that inflation expectations are a major component of actual inflation.

Some may argue that the uptick in core services inflation is a supporting evidence of their view, but it’s important to note that not only has this increase been quite limited in scope, but it has also been centered around housing and auto insurance. This differs significantly from the broader inflationary patterns observed in 2022.

Finally, let’s move to the labor market. Firstly, it’s crucial to reiterate that the conditions outlined in my Portfolio Update of November 2023 still hold: while it’s evident that sectors such as technology or finance, often referred to as “white-collar,” are facing challenges, others are experiencing significant growth. For example, looking at the ADP for March, we can see that job gains were strong across industries with the exception of professional services, where it fell. And it’s not even a problem limited to the United States either, as any recent European graduate looking for a job in tech or finance can confirm the situation is the same here too.

This dichotomy introduces some distortion between the aggregate figures reported and our own empirical observations which, understandably, causes some confusion. Nevertheless, for the purposes of macroeconomic analysis, this distortion holds little relevance.

The Challenger Layoffs rose again, showing that many companies are trying to get more efficient in their resource allocation, adopting a “do more with less” mindset. While this approach may seem prudent on the surface, it poses concerning implications for the future, particularly when compounded with existing labor market challenges: I’m currently working on an article addressing this topic in detail and it will soon be published – stay tuned. For hiring plans, US employers announced plans to add 36.8k positions in Q1, which is a 48% decline YoY and the lowest number of announced hiring plans since 2016.

The NFP also showed fewer jobs added, with the unemployment rate ticking up to 3.9% and the participation rate steady at 62.7%. The softer NFP shouldn’t be a cause for concern, particularly after some of the massive strength seen recently, but it surely opens up the question of whether this may be the start of a string of weak numbers. However, given the fact that the jobless claims are still running in the low 200k’s, I fail to see indications of a material slowdown. Most importantly, it brought cuts back on the table.

Summarizing it all up, what the labor market data is saying is basically this: if you have a job, you’re unlikely to lose it; if you are currently looking for a job, well, good luck. Quoting WSJ’s Timiraos, “the private-sector job vacancy rate fell to 5.3% in March, the lowest level since January 2021. […] There were 1.3 vacancies for every unemployed worker in March, the lowest since August 2021“.

Federal Reserve

This month, in the matter of two weeks a new hawkish narrative, which was expecting rate hikes due to a new inflationary wave, saw both its birth and death. Indeed, as I said at the apex of this narrative on Twitter, while we may not get three cuts as originally thought, to expect a hike was (and still is) simply insane: there is no reason to expect a second wave of inflation, and the direction probabilities for the labor market, being historically tight, are skewed to future weakness. Indeed, while the inflation data wasn’t particularly appreciated, it affected only the timing of cuts, not the economic outlook: if you want to see a change in monetary policy, meaning that you want the Fed to pivot from preparing for cuts to preparing for hikes, you need a change in economic outlook.

It was no surprise then to see that the FOMC left rates unchanged at 5.25-5.50%. It was quite surprising, though, to see a higher-than-expected tapering of its QT programme, where the cap on Treasury runoffs will be reduced from $60 billion to $25 billion, while the monthly redemption cap on agency debt and agency MBS was maintained at $35 billion.

In the statement, the central bank said that “risks to achieving its employment and inflation goals have moved toward better balance”, which is a slight tweak from the previous “moving into better balance”, which could be interpreted as growing concerns of an employment downturn. The statement also kept its guidance that the Fed does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%, with analysts noting that the central bank’s attention is still on cuts.

During the presser, Powell acknowledged that in the recent months there has been a lack of further progress on inflation, but at the same time ruled out rate hike, suggesting that the Committee should instead keep rates at current levels for as long as needed to bring inflation back down. He also said that that when the Fed gets confidence on inflation, rate cuts will be in its scope, but he does not have great confidence either way on whether there will be rate cuts this year. Notably, when asked about stagflation, he replied he sees neither the “stag” nor the “flation”. Also, during the presser Powell did not put too much weight on the hot Employment Cost Index data in Q1, and even drew attention to some dovish data points, which he said showed that policy was restrictive.

Overall, considering the available data, the likelihood of a rate cut occurring in June seems rather slim. If June is indeed off the table, August would still be too soon to gain enough confidence. Therefore, we’re left with either September or November as potential timing for such an action, and while the Federal Reserve operates independently and ideally should not be swayed by electoral considerations, I doubt they would opt to implement a rate cut in the same month as the presidential elections.


The eurozone has kicked off the second quarter on a promising note, as indicated by the HCOB Flash PMI, which has taken a significant leap into expansionary territory. While there were some skeptics when I shared this indicator, it has proven to be accurate in the end: “I suppose the worst for Europe could have been Q1, followed by a recovery”. If current trends persist, we can anticipate a growth rate of between 0.2% and 0.3% (quarter-on-quarter, not annualized) in Q2, matching the growth rate observed in the first quarter.

There are two factors fueling my optimism regarding the European economy:

  • There has been a positive momentum in new business over the past two months, leading to a more aggressive hiring strategy despite the challenges mentioned earlier.
  • The notable increases in output prices are not solely a response to a faster rise in input costs but also reflect the confidence of service providers in adjusting prices.
  • The recovery is occurring concurrently in the two largest economies of the Eurozone, Germany and France.

However, the manufacturing sector isn’t faring as well. Indeed, despite production declining at a slower rate and job losses somewhat easing, the overall picture is far from being positive. New business continues to rapidly decline, along with order backlogs. Weak demand for industrial products is further evidenced by a sharp decline in the volume of purchased inputs and the lack of a turnaround in the inventory cycle. While a sectoral recovery is to be expected soon, it’s crucial to acknowledge certain structural factors, such as the heightened competitiveness of Chinese companies and the impact of anti-economic climate agendas, which are exerting significant influence on the sector.

European Central Bank

To nobody’s surprise, in its April’s meeting the ECB opted to keep rates at the previous levels. The policy statement reaffirmed guidance that rates will be kept sufficiently restrictive for sufficiently long, and that policymakers will continue to follow a data-dependent and meeting-by-meeting approach, without pre-committing to a particular rate path. That being said, a new addition to the statement highlighted that if the Governing Council were to become more confident that inflation is steadily converging towards the target, it would be suitable to ease the level of monetary policy constraint. While the ECB refrained from explicitly mentioning June due to past missteps in pre-announcing policy decisions, the updated guidance was interpreted as a signal to anticipate a rate cut at the upcoming meeting.

My friend Dario Perkins summarized it perfectly: on one hand, we have the Fed, which has been eager to cut rates despite mounting evidence suggesting it shouldn’t, whereas the ECB, which should have already implemented cuts, has been eager to wait for the Fed to make the first move.

During the press conference, Lagarde responded to a question regarding a potential cut in June by mentioning that the ECB would have access to a wealth of additional data by the time of the June meeting, essentially confirming the decision. There were also inquiries about the hotter inflation data in the US and its potential impact on the ECB’s easing strategies, to which Lagarde emphasized the independence of the ECB. Overall, the conference didn’t introduce any significant new information, though it increased the confidence of doves by reaffirming their perspectives.

Later on, ECB sources, as reported by Reuters, indicated that policymakers still anticipate cutting rates in June, although some believe that the case for pausing at the subsequent meeting is gaining strength in light of the recent US inflation data, energy markets, and geopolitical tensions. It was also noted that doves are advocating for rate cuts both in June and July. However, there’s also an argument suggesting caution from the ECB due to the delayed onset of the Fed’s own cutting cycle. Any further insight on this matter will be crucial for the market, so let’s keep our eyes open for the release of next week’s minutes.

In general, as stated already in my Portfolio Update of February 2024, I maintain my view that the ECB will start cutting at the June meeting. However, considering the rapid rise in input costs, likely influenced not only by elevated oil prices but also by higher wages, I anticipate the ECB will adopt a cautious stance: in other words, while the Fed is inclined to follow a scenario where rate cuts are followed by further cuts, the ECB may opt for a different approach, where rate cuts could be followed by periods of pause.

United Kingdom

Surprisingly, the UK situation seems to be showing signs of improvement: indeed, despite a renewed downturn in manufacturing, the enhanced growth in the service sector has propelled overall business growth to its fastest pace in nearly a year. However, while growth is certainly welcome, it has spurred firms to increase hiring, which, coupled with April’s rise in the National Living Wage, has sharply elevated cost pressures. Although selling prices may have somewhat moderated, the rise in costs alongside robust demand suggests that firms may look to raise prices in the coming months. If anything, this raises concerns that a sustainable path to achieving below-target inflation has not yet been attained.

Next week’s GDP data is expected to show another month of modest expansion. With the Q1 growth forecast at 0.4% QoQ, the UK is likely to bounce out of the technical recession that it fell into at the end of 2023.


The focal point of Japan’s economic narrative this month has been the yen, which not only surged to new highs rapidly but also prompted several confirmed interventions. On the morning of April 29th, my proprietary intervention probability indicator soared to as high as 87% (refer to my tweet), enabling us to capitalize effectively on the move. Subsequently, two more interventions followed, amounting to a total of ¥3.5 trillion, or roughly $23 billion.

Overall, in the last week of April the currency experienced the widest range against the USD since late 2022, coinciding with the last round of interventions. We all have to thank the BoJ for making FX great again.

Chart showing the daily and weekly range in USDJPY.

However, we must keep in mind that there is quite a difference between short-term and long-term trends: while interventions, whether verbal or tangible, may momentarily strengthen the yen, sustained depreciation will persist unless there is a policy shift. As I mentioned back in December, individuals aiming to speculate on a stronger yen should await a decline in the attractiveness of carry trades, or, in more refined language, a narrowing of the rate differentials.

Bank of Japan

Aside from the extremely minimalistic policy statement, the BoJ meeting was quite unsurprising as it maintained its policy settings, with the short-term interest rate target left at 0.0-0.1%. Although it dropped its reference from the statement that it currently buys about ¥6 trillion worth of JGBs per month, it stated that it will conduct JGB, commercial paper and corporate bond buying in line with the decision in March.

The absence of surprises from the bank elicited a dovish response, especially given that the markets were expecting a potential signal from the BoJ regarding a reduction in JGB purchases, following recent hints from Jiji. Additionally, the BoJ refrained from commenting on currency weakness, which is ironic given that the first intervention occurred just three days later. However, they acknowledged the need for vigilance towards FX and market movements and their potential impact on the economy and prices. They also observed that there was no observed excessive behavior in either Japan’s asset market or financial institutions’ practices.

It’s worth noting that the BoJ reaffirmed its expectation for persistent accommodative monetary conditions in the foreseeable future, albeit with a commitment to flexibility. Given Ueda’s reluctance to comment on future rate hikes, I doubt next week’s Summary of Opinions will provide any clarity on the matter. In other words, while both the ECB and the Fed swiftly exited QE, the BoJ will adopt a more gradual approach, taking its time.

Finally, with regards to the latest Outlook Report, the median forecast for real GDP for 2024 was revised downward to 0.8% from 1.2%, while the forecast for 2025 remained steady at 1.0%. On the other hand, the Core CPI forecast for 2024 was increased to 2.8% from 2.4%, and to 1.9% from 1.8% for 2025.


The BoC too opted to keep rates unchanged at 5.00%, and refrained from providing any clear indication of potential rate cuts. The statement leaned toward the dovish side, evident in the removal of a line expressing concern about risks to the inflation outlook. Instead, the BoC acknowledged that while inflation remains elevated and risks persist, both CPI and core inflation have shown further easing in recent months: indeed, the BoC’s preferred measure of core inflation, which is where their focus is, still sits just above its 1-3% target range.

The updated Monetary Policy Report indicated that Q1 CPI forecasts have been revised downward to 2.8%, although Q2 CPI is projected to increase slightly to 2.9%, both remaining at the upper end of the bank’s target range. Growth projections saw upward revisions to 2.8% in Q1, but it is anticipated to ease to 1.5% in Q2. The BoC also adjusted its estimate range of the output gap to between -0.5% and -1.5%, and revised its estimate of the neutral range to 2.25-3.25%.

New Zealand

The RBNZ met market expectations by keeping the OCR unchanged at 5.50% and maintained its hawkish-leaning tone, reiterating the necessity of a restrictive monetary policy stance to alleviate capacity pressures and inflation. The also committee expressed confidence that maintaining the OCR at a restrictive level for an extended period will lead to inflation returning to within the 1-3% target range this year.

In the minutes, the RBNZ noted an anticipated further decline in capacity pressure, supporting a continued decrease in inflation. Also, members agreed that there is limited tolerance for a delay in achieving the inflation target while inflation remains outside the target band, especially given the elevated inflation expectations and pricing intentions.