Market Commentary 3rd June 2024 – from Will Binks

A recent Purchasing Managers’ Index (PMI) showed that the manufacturing sector rebounded in May, with the strongest expansion since July 2022. The sector saw a pick-up in orders and a subsequent increase in labour demand to ensure that orders can be met.

The FTSE 100 saw some of its biggest mining and precious metal companies fall in value last week as investors digested the price data of metals. Anglo American ended the week down 3.88%, whilst Rio Tinto fell by 3.17%.

Official estimates showed that Eurozone inflation, measured using the Consumer Price Index (CPI), rose to 2.6% in May, from 2.4% in the previous two months, above the European Central Bank’s (ECB) target of 2%. Core inflation, which excludes energy, food, alcohol, and tobacco rose to 2.9% for the first time since December 2023.

The GfK, German’s largest market research company, released a report suggesting that the overall consumer climate has improved for the fourth consecutive month. The populations willingness to buy products is increasing gradually as income expectations increase, due to a combination of rising wages and falling inflation. An initial estimate of German inflation showed CPI rose to 2.4% in May from 2.2% in April.

Official Gross Domestic Product (GDP) data released on Thursday showed that the US economy expanded at an annualised pace of 1.3% during the first quarter of 2024, down from the previous estimate of 1.6%. GDP Growth has slowed from 3.4% in the final quarter of 2023, due to a reduction in the consumption of goods and services.

Last week also saw data released on the personal consumption expenditures (PCE) index, the Federal Reserve’s preferred measure of inflation, which showed that annual inflation remained steady at 2.7%, matching market forecasts.

PMI data for China pointed to the manufacturing sector experiencing growth for the seventh consecutive month. A non-Manufacturing PMI painted a slightly different picture, with slowing growth, but the sector still appears to be in a state of expansion. The International Monetary Fund (IMF) has raised its expectations for China and expects the economy to grow by 5% in 2024.

Japan saw its headline CPI rise to 2.2% in May from 1.8% in April. The Bank of Japan’s (BoJ) Governor, Kazuo Ueda said in a press conference last week that they will “proceed cautiously” with their monetary policy to ensure that their target of 2% inflation remains sustainable. PMI data for Japanese Manufacturing pointed to the sector expanding during May, whilst consumer confidence improved according to a closely watched index.

Expectations that the UK may delay their decision to lower interest rates following the announcement of the general election weighed on gilt yields last week.

Investors in the US were eagerly anticipating the key inflation figures released last week, leading to a rise in the 10-year bond yield.

GBP / EUR – Current 1.1742 Previous 1.1743

The Pound broadly moved sideways (+0.03%) against the US Dollar and the Euro (-0.008%) last week. Last week didn’t see any major UK events to influence the pound, with investors predominantly looking toward the ECB interest rate decision and US economic data this coming week.