Weekly Market Update and Featured Chart #22

Weekly update #22
For financial professionals only

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

The key takeaways:

  • Holding on, for one last time? The Bank of England keeps interest rates at 5.25% – whilst this week’s MPC meeting saw the same 7-2 voting split as last time, the decision to hold was finely balanced for some members of the Committee. Consequently, the market is pricing in a 55% chance of a cut in August.
  • Back on track; UK CPI falls to 2% for the first time since 2021 – much like our absent summer, inflation has cooled. However core inflation is running higher at 3.5%, with wage growth still relatively hot at around 6%.
  • European inflation steadies – inflation in the eurozone ticked up slightly to 2.6% in May, with the rebound largely driven by an increase in holidays, following a subdued April due to an early Easter. 
  • US retail sales slowdown – US consumers appear to be tightening their belts, as growth in retail sales came in below estimates at 0.1% in May. Sales growth in prior months has also been revised downward. 
  • Strong rebound in UK retail sales – May saw a rise of 2.9%, more than making up for April's 1.8% drop. Consumer confidence rose for the third consecutive month and has reached the highest level seen in two and a half years.

What does that mean for me and my clients?

The cooling economy has brought inflation very close to target, a sharp contrast to where we were last year. This shift may favour more defensive assets and slow down high performing ones. With yields still elevated and cuts seemingly on the horizon, this could be a favourable environment for duration and fixed interest assets to provide diversification benefits in a multi-asset portfolio.

Chart of the week

A chart showing pension fund equity allocations in their home market across Australia, Italy, Japan, France, USA and UK, and the relative weighting compared to the MSCI weighting

Source: Schroder Investment Management Limited, May 2024

Our chart of the week shows pension fund equity allocations in their home market across different countries, and the relative weighting compared to the MSCI weighting.

Why’s this worth sharing?

Pension funds around the world, except in the UK, usually favour domestic investments. While UK pension funds can't reduce their domestic investments much more, there is room to increase them. As we brace for a new government that will be sure to want to boost investment into the UK, we expect growing calls to invest in UK equities

The Markets

Markets remain cautious on the path of rate cuts, following conservative commentary from Fed officials. UK Gilt yields extended higher with sticky wage and services inflation data casting doubt on the BOE’s scope for cuts.

The FTSE 100 had another positive week, responding well to the broadly positive UK economic data released over the last few days. The FTSE 250 drove higher off the back of anticipated rate cuts and takeover activity, with CVC Capital Partners bid for Hargreaves Lansdown sending shares higher.

US stocks reached record highs as Nvidia briefly became the world’s most valuable company. Weaker economic data from the housing market and retail sales tempered enthusiasm, with the S&P 500 slipping after breaking through 5,500 for the first time.

Japan's Nikkei 225 fell after May inflation data came in lower than expected, jeopardizing the Bank of Japan's plans to raise interest rates. The yen weakened, falling below 159 against the dollar for the first time since April. The Hang Seng index saw strength from the tech sector, led by gains from Tencent.

Oil prices hit a 7-week high against a backdrop of rising geopolitical concerns and declining U.S. crude and gasoline inventories.

Weekly ChangeYtD Change
FTSE 1001.59%9.24%
FTSE 2501.97%5.86%
S&P 5000.63%15.87%
Hang Sen2.22%10.36%
Nikkei 225-1.46%3.04%
Brent Crude3.73%11.74%
Gold Spot1.45%14.98%
UK 10yr GILT+20bps+54bps
US 10yr Treasury+4bps+40bps

Source: FE FundInfo, figures as at close Thursday 20th June 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.  

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