Market Update

After several weeks of gains, markets paused this week. US markets fluctuated as Federal Reserve policymakers indicated they are not in a hurry to cut rates. Strong economic data, including robust manufacturing and job reports, led investors to believe that interest rates might remain high for an extended period. Minutes from the Fed’s latest meeting revealed heightened inflation concerns among central bank members. Despite some easing over the past year, recent data showed uneven progress towards the 2% inflation target, dampening confidence in proceeding with interest rate reductions.
US business conditions showed strong improvement. The Composite PMI rose to 54.4 in May, driven by growth in the services sector and some improvement in manufacturing. Mixed inflation data impacted US consumer confidence, with the University of Michigan’s sentiment survey for May showing a final reading of 69.1, down from April’s 77.2, indicating growing concerns over inflation despite positive economic indicators.
Nvidia's impressive earnings boosted markets on Thursday. The semiconductor giant reported a 262% increase in sales to $26.61 billion and announced a ten-to-one stock split. Nvidia’s market cap reached $2.55 trillion, approaching Apple’s $2.87 trillion and Microsoft's $3.17 trillion.
In the UK, markets reacted calmly to Prime Minister Rishi Sunak’s announcement of a general election on July 4. The election is expected to have minimal market impact given the focus on stability from both sides, likely reassuring investors and maintaining market equilibrium.
The FTSE 100 index closed the week lower. Data revealed inflation fell sharply to 2.3% in April from 3.2% in March, primarily due to cooler energy prices. The current inflation rate is the lowest since July 2021, aligning closely with the Bank of England’s (BoE) 2% target. Some market participants were disappointed, hoping for an interest rate cut in June, but the data signals positive progress in the fight against inflation. The UK’s inflation rate is now lower than that of both the Eurozone and the US. The next set of inflation figures will be released on June 19, followed by the BoE’s interest rate decision on June 20.
UK retail sales experienced a significant decline in April as wet weather discouraged shoppers. Sales fell by 2.3% from March to April, a sharp drop following a mild contraction the previous month. This decrease far exceeded expectations of a modest 0.4%. Despite the gloomy retail performance, UK consumer confidence rose to its highest level in over two years in May, although it remains below pre-pandemic levels. This boost in consumer confidence could signal a potential rebound in retail activity as the weather improves and shoppers return to the high street.
In May, the Eurozone Composite PMI Output Index rose to 52.3 from 51.7 in April, surpassing expectations and indicating expansion. The service sector remained strong, with the Services PMI at 53.3, slightly below forecasts but still robust. Manufacturing also performed better than expected, hitting a 15-month high of 47.4, though it remains in contraction territory.
The European Central Bank (ECB) may be ready to cut interest rates next month. ECB President Christine Lagarde expressed confidence in managing eurozone inflation, with policymakers signaling readiness for rate cuts, though wage growth will be a key factor in determining the trajectory of future reductions.
Holidays in the US and UK on Monday might lead to a slower start to the week. Key upcoming reports include US core PCE, personal income and spending, durable goods orders, and home sales. From the Eurozone, we expect economic sentiment data, as well as CPI figures from France and Italy. Additionally, China will release PMI and industrial profits, while Japan will report on industrial production and retail sales.