Market Commentary 2nd May 2023 – from Charlie Hancock

Posted by melaniebond

Market Commentary 2^nd May 2023

Equity Indices

Investor sentiment was mixed last week, with divergences between major equity indices around the globe as a result. The UK’s FTSE 100 moved 0.55% lower, whilst the mid-cap FTSE 250 index gained 0.81%.

Online property search website Rightmove reported that asking prices rose at their slowest pace since before the Covid pandemic during April. In contrast to the buoyant market conditions in recent years, Rightmove stated that sellers are starting to understand the new need to tempt buyers with competitive prices.

A business confidence index compiled by Lloyds Bank improved during April, with businesses feeling more optimistic about the broader economy. Hiring intentions amongst those surveyed pointed to robust labour demand.

Europe

Germany’s DAX index gained 0.26% last week, whilst France’s CAC 40 suffered a decline of 1.13% and Italy’s FTSE MIB fell by 3.13%. The FTSE All World Index – Europe ex UK declined by 0.24% across the week.

Official data showed that the German economy unexpectedly stagnated during the first quarter of the year, with GDP flat versus economist estimates for growth of 0.2%. The broader Eurozone economy grew by 0.1%, which was also weaker than expected.

Eurozone inflation data was mixed. Headline Consumer Price Inflation (CPI) slowed in Germany, whilst the rate of consumer price increases accelerated in France and Spain. The inflation data is likely to contribute to a hawkish European Central Bank (ECB) policy decision and press conference message later this week.

The major US equity indices posted gains last week, led by the NASDAQ 100 index, which gained 1.89%. The S&P 500 index rose by 0.87%, whilst the Dow Jones Industrial Average moved 0.86% higher.

Concerns in the regional banking sector flared up again last week, following earnings results from First Republic Bank, who revealed that they saw deposit outflows in excess of $100 billion during the first quarter. As the week progressed, the bank was reportedly on the verge of collapse, with the Federal Deposit Insurance Corporation considering taking control.

Official data released on Thursday showed that the US economy expanded by 1.1% during the first quarter, which was significantly behind economist estimates of 2%. Consumer spending remained strong, which helped to offset the drag from a slowing housing market and weakening business investment.

Asia

The broad FTSE All World Index – Asia Pacific declined by 0.40%. China’s Shanghai Composite Index gained 0.67%, whilst Japan’s Nikkei 225 rose by 1.02%.

Officials in Beijing are reportedly considering further stimulus measures to aid China’s economic recovery from Covid. The government intend to provide more support to private companies to boost business investment. Tensions between China and western nations in relation to the semiconductor industry continued to make headlines, with Germany reportedly considering imposing a limit on the export of chipmaking related chemicals to China.

Investors paid close attention to comments from the Bank of Japan (BoJ) following their policy meeting last week. There were no signs of any significant policy change under the new governor, Kazuo Ueda, however, Ueda announced that the central bank would conduct a broad review of monetary policy in the next 18 months. The comments came as inflation data from the Tokyo region showed that consumer price increases accelerated in April, rising by 3.5% year on year.

Bond Yields

The 10-Year Gilt yield was relatively stable across the week, moving from 3.75% to 3.72%. Whilst inflation in the UK remains elevated in comparison to other major western economies, recent weak economic data contributed to downward pressure on government bond yields.

Europe

The 10-Year German Bund yield declined from 2.48% to 2.31% last week. Weaker than expected German and broader Eurozone economic growth data appeared to contribute to the decline, with investors anticipating that the European Central Bank (ECB) will finish their hiking cycle in the coming months.

The 10-Year Treasury yield moved from 3.57% to 3.43% across the week.

Whilst the Federal Reserve are likely to deliver a further interest rate hike of 0.25% this month, concerns around regional banks and the broader US economy appeared to spur demand for the ‘safe haven’ of US treasuries last week.

Currency

GBP / USD – Current 1.2567 Previous 1.2432

GBP / EUR – Current 1.1404 Previous 1.1322

The Pound gained 1.09% against the US Dollar last week, whilst rising by 0.72% versus the Euro. Currency traders were optimistic on the Pound, with improved UK business confidence contributing to the improved sentiment.

Commodities

Gold

The Gold spot price was broadly flat, rising by 0.35% to $1,990.00 per ounce. The precious metal has struggled to maintain any momentum above the $2,000 mark in recent months.

Oil

Oil prices softened across the week, with the Brent Crude spot price falling by 2.60% to $79.54 per barrel. Data showed that oil demand in the US rose by more than expected during the week, however, traders appeared to be focussed on broader economic growth concerns, which contributed to a fall in crude prices.