Market Commentary 24th June 2024 – from Will Binks

Posted by melaniebond

Market Commentary 24^th June 2024

Equity Indices

Major UK stock market indices both saw an upwards movement last week. The FTSE 100 and FTSE 250 ended the week up by 1.12% and 1.60% respectively.

Last week saw the release of inflation data for May in the UK, which showed that the consumer price index (CPI) rose by 2% from 2.3% in April. This marks the first time that inflation in the UK has met the Bank of England’s target since July 2021. The annual core inflation rate, which excluded items such as food and energy, dropped to 3.5% compared to 3.9% in April.

The Bank of England (BoE) voted to keep interest rates on hold at 5.25% during their June meeting, with two members voting for a decrease to 5%. The Bank of England Governor, Andrew Bailey, acknowledged that inflation has reduced to their target, but want to ensure this remains sustainable before beginning to cut interest rates.

Europe

European equities were mixed last week. The FTSE All-World Index – Europe ex UK gained 0.61%, whilst the Swiss Market Index dropped 0.26%. The French CAC 40 ended the week 1.67% higher and the German DAX was up 1.02%.

Official data showed that Eurozone inflation, measured using the Consumer Price Index (CPI), increased to 2.6% in May, up from 2.4% in April. Core inflation rose to 2.9% from 2.7% the month before. The European Central Bank (ECB) revised its forecasts higher and expects to see inflation average 2.5% in 2024 and 2.2% in 2025.

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 improved last month, albeit at a lower than expected rate.

All major US equity indices posted positive returns last week. The Dow Jones Industrial Average ended the week up by 1.45%, whilst the S&P 500 was up 0.61%. The tech heavy NASDAQ 100 gained 0.21%.

The graphics card and computing giant, Nvidia, surpassed Microsoft and Apple last week to become the most valuable publicly listed company in the world. Nvidia’s share price has contributed to about a third of the S&P 500’s growth in the year to date and now makes up over 7% of the NASDAQ 100.

An initial Purchasing Managers’ Index (PMI) reading for June indicated that business activity in the US expanded at the strongest pace since April 2022. The services sector saw a bigger improvement when compared to manufacturing, but are both in expansionary territory.

Asia

Asian equity indices declined last week and underperformed the rest of the world. The broad FTSE All World Index – Asia Pacific posted a loss of 0.32%. China’s Shanghai Composite Index fell by 1.14%, whilst Japan’s Nikkei 225 moved 0.56% lower.

Inflation in Japan, measured by CPI, accelerated to 2.8% in May from 2.5% in April. This is Japan’s highest reading since February 2024 with energy prices contributing a large percentage, following the state’s energy subsidies ceasing. Excluding energy and food prices, core inflation increased to 2.5% in May from April’s 2.2%.

The Russian President, Vladimir Putin, has been strengthening ties in the East and has sworn to increase trade with his Chinese counterpart, President Xi Jinping. Putin was also seen in Pyongyang sealing a strategic partnership over trade and military aid with the North Korean leader, Kim Jong Un, sending uncertain signals to other Asian nations, including China.

Bond Yields

The 10-Year Gilt yield moved broadly sideways from 4.05% to 4.07% last week. Investors continue to evaluate the outlook of the UK economy and politics, with mixed signals swaying bond yields day to day.

Europe

The 10-Year German Bund yield moved upwards from 2.36% to 2.40% last week. The German economic sentiment indicator showing some stagnation alongside the upcoming French election has led to some uncertainty in the Eurozone.

The 10-Year Treasury yield rose from 4.22% to 4.26%. Better than expected PMI data sent mixed signals to investors outlooks on interest rates, but the market is currently pricing a 65% chance of a US Federal Reserve interest rate cut by September.

Currency

GBP / USD – Current 1.2645 Previous 1.2687

GBP / EUR – Current 1.1824 Previous 1.1852

The Pound fell by 0.33% and 0.24% against the US Dollar and Euro last week respectively. The Pound fell as investors consider the impact of UK monetary policy and politics.

Commodities

Gold

The Gold spot price declined 0.48% last week, ending the week at $2,321.87 per ounce as rising bond yields globally weighed on the precious metal, which provides no yield and is therefore typically considered a more attractive asset if yields and interest rates are low.

Oil

The Brent Crude spot price gained 2.95% last week to $85.07 per barrel as uncertainty in the middle east continues to provide support to the price, alongside ongoing conflict in Russia and Ukraine.