Market Update

The FTSE 100 surged, closing the week with a gain of 2.68%. The Bank of England's decision on Thursday to maintain interest rates at 5.25% was widely anticipated by market participants. Governor Andrew Bailey expressed cautious optimism, citing favorable trends in inflation and projecting a decline toward the 2% target in the coming months. His comments were well-received by the markets, signaling a potential shift towards a more dovish sentiment. Despite holding rates steady, the committee's stance hinted at a softer tone, with 7 members voting to maintain rates and 2 advocating for a cut.
Looking ahead to the June meeting, policymakers will closely scrutinize labor market reports and inflation figures to assess the economy's trajectory. Governor Bailey stressed that while a rate change in June is not predetermined, it remains a possibility depending on economic indicators.
In positive news, preliminary Q1 GDP data showcased a resilient UK economy, dispelling recession fears. The economy expanded by 0.6%, its fastest rate of growth in two years. Key drivers included growth in service sectors such as retail, public transport, haulage, and health. This promising data bodes well for the UK's economic outlook, especially against the backdrop of an upcoming election where economic policies are expected to take center stage.
On the global stage, the S&P 500 extended its May gains fueled by a robust earnings season. Among the 459 firms in the S&P 500 that reported earnings this quarter, profits exceeded forecasts by an average of 8.4%. Furthermore, around 79% of these companies surpassed profit projections, up from 76% in the previous quarter.
Markets reacted positively to signs of a cooling US labor market, bolstering the case for potential rate cuts. Reports showed a surprising increase in weekly jobless claims, reaching 231,000 for the week ending May 4th— the highest since August. Consumer sentiment also weakened, with the University of Michigan's preliminary consumer sentiment index for May unexpectedly dropping to 67.4, its lowest level in six months. Next week, attention will focus on April's CPI, expected to decrease from the prior month's 3.5%.
In Asia, stocks rallied on renewed hopes for global rate cuts and strong economic indicators, including better-than-expected Chinese export/import data. The Hang Seng closed the week up 2.64%.
Looking ahead to next week, key events include the UK unemployment rate and average earnings, US PPI and CPI releases closely watched by Fed officials and investors, and US retail sales and industrial production data. Friday will feature Chinese industrial production, retail sales, and unemployment figures.