Weekly Market Update and Featured Chart #23

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

The key takeaways:

• US GDP growth creeps higher – the US economy expanded by 1.4% (YoY) in Q1, its lowest growth rate since its early 2022 contraction.
• UK economy bounces back – GDP grew by 0.7% in Q1 on the back of strong services figures, its fastest rate of expansion since late 2021.
• German confidence drops – the latest GfK Consumer Climate study showed falling income expectations and views on economic prospects, missing market forecasts.
• The Yen tumbles – the Japanese currency fell to below 160 per dollar, its lowest level since 1986, as the government considers action to support the economy. 
• India's set for a bond boost – Indian government bonds have now been included in JPMorgan’s emerging market bond index; a move anticipated to attract billions in inflows.

Declining German consumer expectations support hopes for more ECB cuts, while slower US GDP growth leaves investors hoping for prompt action from the Fed, before the end of the year.  On the other hand, stronger UK GDP figures may stoke fears of lingering inflation and cast doubt on an August rate cut.

The continued fall in the yen comes largely from the gap in interest rates between it and other developed nations, with Japan only recently moving away from negative rates. While the weak yen makes imports expensive for Japanese consumers but increases profits for Japanese multinationals repatriating earnings.

Chart of the week

Source: Barrons, S&P Dow Jones Indices. As at 31st May 2024

Our chart of the week shows the total return of all ‘Magnificant-7’ stocks throughout 2023 compared to year-to-date performance in 2024. It also compares each stock’s contribution to the total return of the S&P500 Index during these two periods.

The top chart highlights the massive returns seen by almost all Mag-7 stocks in 2023, showing their dominance in overall index returns.

In contrast, the bottom chart shows a very different picture. While the majority of returns in 2024 (to end of May) have been positive, growth rates are nowhere close to 2023 highs. The exception here being Nvidia which, even after June’s dip, continues its incredible run and makes up almost a third of the returns of the entire S&P500 . However, any drop in AI demand expectations could quickly begin to reverse its gains, with huge potential knock-on effects for the index as a whole. US and global passive investors should stay cautious.

US markets saw small gains from positive interest rate expectations, despite mixed tech results and Nvidia volatility following a dip early in the week.

In Hong Kong, the Hang Seng was pulled down by headwinds from Chinese Electric vehicle makers facing new western tariffs.

UK markets had a muted week, seeing only small drops, as we remain between earnings seasons and businesses and consumers await the results of next week’s general election.

Oil gained as investors renewed worries about disrupted supplies from an expansion of the conflict in the Middle east, while bond yields rose on increased inflation concerns in the UK, Canada and Australia.

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.