This week’s market update highlights the latest economic news and general market performance across the UK, US and Asia.
The key takeaways:
- General election called for 4th July – Rishi Sunak announces the UK will head to the polls in the summer.
- Inflation falls to 2.3% – however it was still higher than expected, tempering expectations of imminent cuts.
- US PMI data comes in above expectations – at 54.4, it beat expectations of 51.1, the highest since April 2022.
- BHP Billiton improves bid for Anglo American – the world’s largest mining company offers improved £38.6bn bid for FTSE-listed competitor Anglo American
- Nvidia released latest earnings – it continues to beat market expectations on AI demand, with quarterly revenues of $26bn, an increase of 262% compared to a year ago
What does that mean for me and my clients?
The continued decline in inflation numbers is positive. But being slightly above expectations has decreased the likelihood of interest rate cuts in June. Services inflation continues to be stickier, so the Bank of England may potentially wait until August, before changing its monetary policy. This was likely one of the reasons Rishi Sunak decided to call an election in July.
This led to higher bond yields over the week, and therefore negative returns. The FTSE indices also underperformed during the week due to reduced chances of an interest rate cut, at least until after the election.
Chart of the week
Source: Federal Reserve St. Louis, Incrementum AG
The chart shows the relationship between a broad commodity index and equities, represented here by the US market (S&P 500).
Why’s this worth sharing?
Commodities are now trading at record lows compared to the US equity market. If elevated inflation continues, and interest rates remain higher for longer, commodity exposure within a diversified portfolio offers the potential to deliver positive returns in this environment.
The Markets
Both FTSE indices were negative during the week, given the inflation print on Wednesday. However, both indices remain in positive territory year to date. The S&P 500 ended the week at -0.66%, as stronger than expected US PMI data suggested rates could stay higher for longer. Although the technology heavy Nasdaq index ended the week marginally positive, with Nvidia rallying after earnings.
In Asia, markets were again influenced by the outlook for Fed policy with the Hang Seng index underperforming, although in Japan the Nikkei 225 rallied 1.41%.
In commodities, Brent Crude ended the week negative mainly because of decreased chances of US rate cuts. The implication here being that this may weaken demand. Similarly for gold, higher for longer interest rates has led to a sell off this week in the precious metal.
Bonds traded lower this week, with higher-than-expected inflation numbers edging yields higher.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | -1.18% | 8.00% |
| FTSE 250 | -0.92% | 5.74% |
| S&P 500 | -0.66% | 11.07% |
| NASDAQ | 0.28% | 13.34% |
| Hang Seng | -3.36% | 12.39% |
| Nikkei 225 | 1.41% | 17.47% |
| Brent Crude | -2.34% | 7.19% |
| Gold Spot | -1.89% | 13.23% |
| UK 10yr GILT | +15bps | +65bps |
| US 10yr Treasury | +11bps | +52bps |
Source: FE FundInfo, figures as at close Thursday 23rd May 2024.
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.