Weekly Market Update and Featured Chart #20

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

The key takeaways:

• Unsurprising rate cuts from the ECB – The European Central Bank (ECB) surprised no one with their anticipated interest rate cut to 3.75%, but did raise eyebrows with increased inflation forecasts for this year and next. 
• Recovering UK retail sales – Year-on-year growth in sales rose to 0.7% in May, bouncing back from a 4.0% decline in April.
• US job seekers claims rise – New claims rose to 229,000 this week, indicating a continued gradual weakening in the US labour market.
• Lowest US job openings since February 2021 – US job openings fell in April to 8.06m, spurring expectations of slower wage growth and lower inflation.
• Nvidia becomes the world’s second most valuable company – The incredible growth of Nvidia continued this week, with the chip maker surpassing a $3trn valuation having added $1.8trn in market cap so far this year.

Inflation is finally starting to cool down, allowing central banks to consider cutting rates. However, the ECB's upward inflation projections suggest there could be a few bumps in the road ahead.

This week, falling yields have boosted risk assets, with both bonds and equities pushing higher.

Chart of the week

Source: HSBC Asset Management, June 2024

Our chart of the week shows recent investor inflows into the Chinese stock market, and the notable increase so far in 2024 compared to 2023.

Market sentiment can rapidly shift. Last year, China was one of the worst performing markets, leading to a flood of negative narratives about the region’s prospects. However, whilst there are still some legitimate concerns such as geo-political risks, investors have quickly returned to take advantage of deeply discounted valuations - leading to healthy returns in indices like the Hang Seng.

It’s another reminder of the rotational nature of markets, and the benefits in diversifying across regions.

It also signals an overall improvement in investor sentiment, as capital flows back to risk assets after seeking safety from the rising yields in 2023.

Markets regained confidence in rate cuts arriving this year, following softer US labour data, reversing the trend of expecting fewer cuts due to hotter data in previous weeks. This led to lower yields and higher risk assets, echoing past market reactions to interest rate expectations.

Following three weeks of losses, the FTSE 100 has had a mixed week, with weakness from miners and banks, offset by stronger returns from pharmaceuticals.

Both the S&P 500 and the Nasdaq hit record highs, as Nvidia once again helped drive a tech rally in US stocks. Positive earnings from CrowdStrike and Hewlett Packard Enterprises also provided momentum to returns from the tech sector.

Japanese stocks made a slight comeback after last week's dip, with SoftBank's valuation hitting a 3-year high. The Hang Seng index surged on improved Chinese sentiment, with the real estate sector seeing significant gains.

Brent crude prices plummeted to a four-month low as OPEC revealed plans to start phasing out voluntary oil output cuts from October.

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.