Weekly podcast – Market overview
This week’s host, Investment Manager, Tim Horrocks, discusses the ups and downs of the past week with Head of Equity Research, Chris Beckett and Equity Research Analyst, Ben Barringer. Among the topics discussed – inflation, interest rates, the technology sector and what markets will focus on next.
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Market overview – Alan McIntosh, Chief Investment Strategist
Global stock markets ended a little lower last week in choppy trade, with the MSCI All Country World Index declining 0.5% (+9.0% YTD). Much of the focus was around negotiations to raise the US debt ceiling and over the weekend news broke that a tentative agreement had been reached.
US stocks ended the week strongly, boosted by hopes of a resolution in the debt ceiling stand off and surging technology stocks as optimism around Artificial Intelligence (AI) reached euphoric levels. After posting the largest daily decline of the month on Tuesday, solid gains on Thursday and Friday saw US benchmarks move back into positive territory on the week, closing up 0.3% (+10.3% YTD).
Technology-focused indices outperformed, rising over 2.5% on the week (+24.4% YTD), led by a 24% jump in Nvidia after the chipmaker announced better than expected first quarter results and a sizable upward revision to its profit outlook. The gains mean the company is now approaching a market capitalisation of US$1tn and is the sixth most highly valued public company globally.
On the economic data front the latest releases from the US have come in quite strong, although above forecast inflation figures suggest inflation remains sticky. The core personal consumption expenditures (PCE) price index, seen as the Federal Reserve’s preferred inflation gauge, rose 0.4% month on month in April, rising 4.7% in annual terms.
Higher rates ahead?
The latest UK inflation data came in hotter than forecast, with the consumer price index (CPI) for April showing an 8.7% annual increase. While this marked a move back into single-digit territory after seven consecutive 10+% monthly prints, it suggests there is still more to be done from the Bank of England (BoE) in its fight against inflation. Base level effects will likely see further declines in the headline figure in the coming months, but there are growing doubts whether it will return to more palatable levels in a timely manner.
The core reading, which strips out volatile factors such as food and energy, rose to a 21-year high of 6.8%, from 6.2% previously. Taken together the data points sparked increased market expectations for further interest rate increases from the BoE, with the terminal rate now seen at 5.5% around the end of the year. There were sizable declines in bond markets as a result, as the two-year gilt yield rose back up near 4.5% - close to the levels it peaked at last Autumn during the turmoil surrounding the mini-budget.
The pound declined on the week, falling to its lowest level in almost two months against the US dollar, ending around 1.23. UK stock benchmarks also ended in the red, down 1.6% (+4.2% YTD). In Europe, the MSCI Europe ex UK index fell 1.4% (+12.2% YTD) with German, French and Italian bourses all underperforming.
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