Market Commentary 10th June 2024 – from Charlie Hancock

Posted by melaniebond

Market Commentary 10^th June 2024

Equity Indices

The UK’s FTSE 100 index lost a small amount of ground across the week, declining by 0.36%. The mid-cap FTSE 250 index posted a loss of 0.84%.

A construction Purchasing Managers’ Index (PMI) showed the sector continued to expand during May, with the pace of growth picking up from the level recorded for April. Construction firms surveyed said that price rises for materials continued to slow, but subcontractor costs increased at the highest rate in 9 months, pointing to robust demand for labour. Housebuilding activity rose for the first time since October 2022.

Mortgage lender Halifax reported that the average house price declined by 0.1% in May. The lender believes that the market is unlikely to see huge fluctuations in the near term, due to a limited supply of properties.

Europe

European equity indices were mixed last week. Germany’s DAX index posted a small gain of 0.31%, France’s CAC 40 was broadly flat (+0.11%), whilst the Swiss Market Index gained 2.12%. The FTSE All World Index – Europe ex UK, which is heavily weighted towards Swiss stocks, rose by 1.16%.

The European Central Bank (ECB) cut interest rates for the first time in 5 years, taking its key interest rate down by 0.25% to 3.75%. The central bank stated that it was appropriate to “moderate the degree of monetary policy restriction” after 9 months of keeping rates on hold. The ECB’s president, Christine Lagarde, said they were “not pre-committing to a particular rate path” given that inflation is likely to remain above the central banks target well into 2025.

Eurozone retail sales declined by more than expected in April, with volumes falling by 0.5%. The data indicated that demand from consumers for retail goods remained weak, with some analysts suggesting that consumers are favouring greater spending on services at the expense of goods.

Equity indices in the US moved higher, led by the NASDAQ 100 which gained 2.51%. The S&P 500 rose by 1.32%, whilst the Dow Jones Industrial Average saw a relatively muted gain of 0.29%. The tech heavy NASDAQ and S&P 500 were boosted by NVIDIA Corp rising to new all-time highs, with the stock gaining 10.27% across the week.

PMI data for the US economy indicated that the services sector returned to growth during May after a shallow slowdown during April. Meanwhile, a manufacturing PMI showed that the ongoing slowdown in the sector worsened last month.

Data for the US labour market painted a mixed picture. The number of job openings declined to the lowest level since February 2022, pointing to deteriorating hiring conditions. Friday’s jobs report however showed that the US economy added 272,000 jobs in May, which was significantly more than expected. Despite the strong payroll number, the unemployment rate rose to the highest rate since early 2022 (4.0%).

Asia

The FTSE All World Index – Asia Pacific rose by 1.52%, with the gain supported by the largest stock in the index, Taiwan Semiconductor Manufacturing Co (TSMC), rising by 7.06% across the week. China’s Shanghai Composite Index declined by 1.15%, whilst Japan’s Nikkei 225 posted a gain of 0.51%.

Relations between China and the western world made headlines again, after the Chinese government accused the European Union (EU) of “working to suppress Chinese companies”. The comments came as EU officials said they intend to implement tariffs on imports of Chinese electric vehicles. Economic data was generally positive, with demand for Chinese made products remaining strong as exports rose by 7.6% year-on-year in May.

Final data confirmed that Japan’s economy shrank by 0.5% in the first quarter of 2024. The sluggish economic momentum appears to be contributing to the Bank of Japan (BoJ) maintaining a dovish tone. The governor of the central bank, Kazuo Ueda, stated that the BoJ would “move cautiously” in the interest of avoiding any big mistakes. It is widely anticipated that the BoJ will keep interest rates on hold at their upcoming June policy meeting.

Bond Yields

The 10-Year Gilt yield declined from 4.32% to 4.26% last week. Yields have been relatively stable following Prime Minister Rishi Sunak’s general election announcement. Speculation that the Bank of England (BoE) will avoid cutting rates at their June policy meeting has been growing, given the pending election, however, the prospect of a Labour government appears to have had little impact on bond yields.

Europe

The 10-Year German Bund yield moved from 2.66% to 2.62%. Yields declined during the first half of the week heading into the ECB’s interest rate cut announcement, before rising again on Friday as investors reacted to the US jobs reports.

The 10-Year Treasury yield declined from 4.50% to 4.43%. Treasury yields dropped sharply during the first half of the week, but regained some ground in the wake of labour market data showing the US economy added significantly more than expected jobs during May.

Currency

GBP / USD – Current 1.2737 Previous 1.2701

GBP / EUR – Current 1.1743 Previous 1.1686

The Pound moved slightly lower against the US Dollar (-0.18%), with the greenback experiencing strength against most major currencies. Against the Euro, the Pound rose by 0.26%. Currency traders appear relatively relaxed about the upcoming General Election, with no significant volatility in the Pound as a result.

Commodities

Gold

The Gold spot price declined by 1.44% to $2,293.78 per ounce. The week’s US economic data, including stronger than expected wage increases, appeared to push out expectations for an interest rate cut by the Federal Reserve. This contributed to lower demand for the non-interest bearing precious metal.

Oil

The Brent Crude spot price fell by 2.45% to $79.62 per barrel. A surprise build in US inventory levels during the previous week appeared to be the main driver for softer crude prices last week, with inventories rising by 4 million barrels. Oil market analysts had been expecting a 1.9 million barrel decline.