Weekly Market Update and Featured Chart #19

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

The key takeaways:

• Chinese manufacturing declines... – at 49.5, May's PMI data shows the first contraction in factory activity since February, as new orders and foreign sales fall.
• ...as US expansion slows – Q1 GDP figures showed an annualised growth rate of 1.3% as consumer spending slowed more than anticipated.
• Japanese consumer confidence drops – the consumer confidence index fell to 36.2 in May, as household sentiment fell below April's figure (38.3) and the market forecast (38.9).
• German inflation causes concern – consumer prices rose by 2.8% versus a year ago, undercutting the likelihood of an imminent European Central Bank (ECB) rate cut.
• A week of M&A news – Anglo American rejected a third bid from BHP, Royal Mail owner IDS agreed a £3.6 billion takeover by EP Group, and US oil giant ConocoPhillips agreed to buy rival Marathon Oil for $17 billion.
  

This week's growth and inflation data shows continued divergence of economic performance between countries, highlighting interest rate cuts aren't a given in the short-term, even for likely early movers like the ECB.

Regional diversification is key to spreading country-specific risk and investors should be aware of downside risks if rate cuts are pushed back.

Chart of the week

Source: Schroders, LSEG Datastream as at 30th April 2024

Our chart of the week shows the weight of the 'Magnificent 7' stocks in the MSCI All Country World Index (ACWI) compared to Japan, UK, France, Canada and China's combined weights.

Even without Tesla, the index weights of these US tech stocks equal the total allocation of all five countries listed. Although the US isn't alone in its stock market concentration, its dominance of global indices (the MSCI ACWI has around a 63% US allocation) mean even supposedly well-diversified global investors may not have spread their risk as much as they'd like.

This led many active managers to underweight the Magnificent 7, and if the rally continues to grow, could benefit well.

The FTSE 100 finished in negative territory this week after a series of consecutive daily losses owing to broad company declines.

Lower US GDP growth figures weighed on the S&P500 and NASDAQ over fears around weaker consumption, and tech stocks too as officials slowed the issuing of chip licenses to the Middle East.

In Asia, the Hang Seng was down owing to tech losses, as price competition rose in China's AI sector, and geopolitical risks re-emerged. Brent crude rose early in the week following news of low US stockpiles, though this was mostly reversed over fears of oversupply. Yields on US and UK 10-year bonds rose as the likelihood of US rate cuts in 2024 fell, with rises somewhat paired back on Thursday as the lower GDP growth figures came in.

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.