Market Commentary 17th June 2024 – from Charlie Hancock

Data on Gross Domestic Product (GDP) showed that UK economic growth flatlined during April. The Office for National Statistics (ONS) cited wetter than average weather as a headwind for consumer spending during the month. The weather also reportedly disrupted activity on building sites, with construction output declining by 1.4% during the month.

Last week saw a flurry of headlines regarding the upcoming general election after both major parties published their manifestos. The Labour party outlined plans for small tax increases to fund new spending on education and investment into clean energy, whilst the Conservatives focussed on proposals for tax cuts, including reducing National Insurance contributions.

Sentiment on European equities was dented at the start of the week after the French President, Emmanuel Macron, unexpectedly announced that parliamentary elections will take place at the end of June. Investors appeared concerned about rising polls in favour of the National Rally party led by Marine Le Pen. The global ratings agency, Moody’s, stated that the shock elections were a negative factor for France’s credit rating.

Eurozone economic data was generally disappointing. Industrial production across the bloc declined by 0.1% in April, defying economist expectations for a rise of 2%. Meanwhile, key figures at the European Central Bank (ECB) made some hawkish remarks during the week, with president Christine Lagarde indicating that further rate cuts should not be expected “any time soon”.

Investors paid close attention to the US inflation data released last week, which showed that the Consumer Price Index (CPI) rose by 3.3% year-on-year in May, slowing from the 3.4% recorded in April. The Producer Price Index (PPI), which measures ‘factory gate’ prices, came in softer than expected for May, with prices declining by 0.2% month-on-month.

New weekly jobless claims and the number of continuing unemployment claims both came in higher than expected, which pointed to a slowing labour market. Meanwhile, the chair of the Federal Reserve,  Jerome Powell, said that recent jobs data “may be overstated” when asked about the health of the US labour market. Powell’s comments came during the post Federal Open Market Committee (FOMC) meeting press conference, with the central bank voting to keep rates on hold.

Relations between China and the European Union (EU) appeared strained last week, after the EU announced they will implement steep tariffs on electric vehicles imported from China. Vehicles will be subject to tariffs of up to 48%, which analysts expect will result in significantly lower demand from European customers. The announcement coincided with Volvo stating they will move production of some electric vehicles from China to Belgium.  US-China relations also appeared strained, with the Biden administration reportedly considering further restrictions on the supply of microchip technology to China.

Data in Japan showed that Producer Price Inflation (PPI) was higher than expected in May, fuelling expectations that the central bank will hike interest rates further. The Bank of Japan (BoJ) kept interest rates on hold following their policy meeting last week, but signalled that they may hike rates in July, depending on incoming economic data.

GBP / EUR – Current 1.1852 Previous 1.1743

The Pound lost ground against the US Dollar last week (-0.39%), with the Dollar strengthening as investor demand for the ‘safe haven’ asset rose. Against the Euro, the Pound gained 0.93%, with sentiment on the Eurozone currency dented by the surprise announcement of elections in France.