Weekly Market Update and Featured Chart #14

This week’s market update highlights the latest economic news and general market performance across the UK, US and Asia.

The key takeaways:

• Sticky US inflation – The Core PCE deflator, the Fed’s preferred measure of inflation, came in hotter than anticipated, with annualized prices rising 3.7% in Q1. 
• US remains exceptional – The US GDP growth rate declined for a 2nd successive quarter but still reflects a hot economy, growing at 1.6% over the first three months of the year.
• Strength in the UK economy –The UK composite PMI rose and came in at 54.0, beating expectations and delivering the strongest reading since May of last year.
• Recovery in the Eurozone – Despite the slow pace of manufacturing surveys, Europe saw an increase in April's composite PMI, reaching its highest level in 11 months, mainly due to a resurgence in the services sector. Germany's PMI also climbed into expansionary territory for the first time in nearly a year.
• Earnings hold up – This week saw a handful of disappointing earnings results, notably from Tesla and luxury goods multinational Kering. However nearly three-quarters of the S&P 500 companies that have reported their Q1 results so far have posted positive earnings surprises.

We’ve had another good quarter with strong earnings and GDP growth across different regions, which is generally good news for equities. Whilst inflation remains slightly higher than central banks would like, it shows a strong economy where companies can make profits and benefit investors. There have of course been exceptions, and the market has punished some firms with disappointing earnings.

We should keep this in mind as we look ahead, future stock growth will depend on companies continuing to meet earnings expectations.

Chart of the week

Source: Parmenion

The chart above shows the 12-month inflation views from a selected panel of economists by Parmenion.

We recently surveyed a panel of experts on their macro and market views. It’s been widely commentated that the final push, back towards the 2% target could be the trickiest. Our panel of economists and strategists firmly believe inflation will continue to fall over the next 12 months. If this happens, central banks can kick start the interest rate cutting cycle.

Please see full version of the survey result here.

The FTSE 100 hit record highs in 4 consecutive sessions this week and is on track for its biggest weekly gain in over seven months.

Strong earnings and attractive valuations have boosted UK stocks, sparking increased acquisition interest. Examples include miner Anglo American and cybersecurity firm Darktrace, both examples that have surfaced over the last week. 

Thursday's spike in inflation briefly posed a threat to the gains in US stocks, which had been fuelled by a week of widespread earnings successes. However, the continued strong performance of companies like Microsoft and Alphabet has reignited the upward trend.

Significant gains in the Hang Seng this week have now brought the index into positive territory for the year to date, driven by foreign investor flows returning to the market. 

Brent crude continued to stabilise as Middle East tensions remained contained, whilst gold retraced some of the strong gains from recent months with an improvement in risk sentiment. 

Bond yields drove higher after the US PCE index rose by more than advance estimates, which consequently pushed expectations of interest rate cuts back to later in the year.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.