Market Commentary 20th May 2024 – from Will Binks
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Market Commentary 20th May 2024 |
Equity Indices |
UK |
The major UK stock market indices were mixed last week. The FTSE 100 fell by 0.16% across the week, whilst the FTSE 250 rose by 0.51%. A data release by the Office for National Statistics (ONS) showed that unemployment rose to 4.3% from January to March, slightly higher than the 4.2% in the previous three month period. Last week also saw the ONS release date for wage growth, which remained strong despite the slowing jobs market, sending mixed signals to the Bank of England about future inflation levels in the UK economy. Investors closely listened to comments from key officials from the Bank of England last week, with the chief economist, Huw Pill, stating that it’s ‘not unreasonable’ to expect discussions about interest rate cuts this summer. |
Europe |
European equity indices posted mixed results last week, with the Swiss Market Index (+2.42%) leading the pack. The FTSE All-World Index – Europe ex UK gained 1.50%, Germany’s DAX index fell by 0.35% and France’s CAC 40 posted a loss of 0.63%. Official data showed that Eurozone inflation, measured using the Consumer Price Index (CPI), remained stable at 2.4% in April, the same as in March. European inflation is marginally above the European Central Bank’s (ECB) target of 2%. Core inflation, which excludes energy, food, alcohol, and tobacco fell for a ninth consecutive month to 2.7%, the lowest level since February 2022. The ZEW, a major economic research institute in Germany, released data on the Economic Sentiment for Germany survey. The data is gathered by interviewing up to 300 experts from banks, insurance companies and financial departments. According to the ZEW, Economic Sentiment rose to the highest level since February 2022, aided by improved economic conditions in the Eurozone. |
US |
Equity indices in the US ended last week higher and outperformed the rest of the globe. The S&P 500 rose by 1.54%, the tech-heavy NASDAQ 100 ended the week 2.12% higher, whilst the Dow Jones Industrial Average posted a gain of 1.24%. The Consumer Price Index (CPI) slowed to 3.4% year-on-year in April, down from 3.5% in March, broadly in line with expectations. Core inflation slowed to 3.6% year-on-year, which was the lowest reading in 3 years since April 2021. The Federal Reserve Chairman, Jerome Powell, stated on Tuesday ‘I don’t think that it’s likely’ when asked about the possibility of interest rate rises. Data for producer price inflation, which measures output prices from producers of goods and services, didn’t help in reducing expectations about a possible resurgence in inflation. Prices rose by 0.5% in March, which was more than expected and the most since July 2023. |
Asia |
Asian equity indices posted good returns last week with the broad FTSE All World Index – Asia Pacific ending the week up by 2.24%. China’s Shanghai Composite Index was broadly flat (-0.02%), whilst Japan’s Nikkei 225 gained 1.46%. Japan’s Cabinet Office released preliminary data on Gross Domestic Product (GDP) last Thursday, which showed the nation’s economy shrank by 2.00% in the first quarter of 2024. Japan’s weak Yen continued to have an impact on the growth of the nation, mounting pressure on the Bank of Japan to increase interest rates. The Presidents of China and Russia, Xi Jinping and Vladimir Putin, met last Thursday and pledged to cooperate against ‘destructive and hostile’ US pressure and ‘containment’ of their countries. China has previously reduced exports to Russia following threats from the West to target Chinese companies should they continue to support Russia in its war with Ukraine. China’s foreign minister, Wang Yi, called the tariffs imposed on US imports of Chinese electric vehicles ‘a classic example of bullying’. |
Bond Yields |
UK |
The 10-Year Gilt yield declined from 4.16% to 4.12% last week. Economic data has been sending mixed signals to the Bank of England and the markets about the future path of interest rates. The weakening labour market has raised bets that interest rates will drop this year and the possibility of an interest rate cut in June has risen to 50%, according to market data. |
Europe |
The 10-Year German Bund yield moved sideways across the week from 2.52% to 2.52%, although it was quite volatile during the week. The European Central Bank (ECB) is largely expected to start to cut interest rates as soon as June this year. |
US |
The 10-Year Treasury yield moved lower last week, falling from 4.51% to 4.42%. Investors eagerly await the release of minutes from the Federal Reserve’s upcoming monetary policy meeting, with markets expecting a reduction in interest rates within the latter third of the year. |
Currency |
GBP / USD – Current 1.2700 Previous 1.2525 GBP / EUR – Current 1.1681 Previous 1.1629 The Pound gained ground against both the US Dollar and the Euro last week, rising by 1.40% and 0.45%, respectively. The US Dollar weakened against most major currencies last week amidst growing expectations for the Federal Reserve to cut their interest rates later in the year. |
Commodities |
Gold |
Gold surged by 2.3% last week reaching $2,414.72 per ounce. Investors flocked to the precious metal as bond yields around the world began to fall. |
Oil |
Oil prices rose by 1.41% last week, with the spot price of Brent Crude reaching $83.96 per barrel. Geopolitical tensions around the globe, including attacks on Russian refining facilities and a Houthi missile strike on a China-bound oil tanker have heightened uncertainty in the market. |