Market Update

European markets closed the week higher, buoyed by the European Central Bank’s (ECB) decision on Thursday to cut interest rates for the first time in five years. Policymakers reduced key lending rates by 25 basis points, with the deposit rate lowered from 4% to 3.75%. This decision reflects significant improvements in the inflation landscape and the effectiveness of previous monetary policy measures. Although many expected the ECB to follow the Federal Reserve's lead before cutting rates, it’s important to remember that central banks operate independently, focusing on their own domestic data and price signals.
In the subsequent press conference, ECB President Christine Lagarde maintained a hawkish tone, stating that the council is “not pre-committing to a particular rate path.” She acknowledged that domestic price pressures remain strong with elevated wage growth and that inflation is likely to stay above target into next year. Policymakers will continue to assess incoming data before considering any further policy adjustments. The ECB’s rate cut follows similar actions by other central banks, including the Bank of Canada and earlier moves by central banks in Brazil, Mexico, Chile, Switzerland, and Sweden.
Data in Europe showed that retail sales in the region fell by 0.5% in April, following a downwardly revised 0.7% decline in March. However, the UK’s construction sector displayed robust growth, with the S&P Global UK Construction PMI rising to 54.7 in May from 53.0 in April, marking the fastest pace of growth in two years and exceeding economists' expectations of 52.5.
US stocks reached new highs this week, driven by enthusiasm over artificial intelligence, which lifted technology stocks. The NASDAQ saw a 2.4% weekly return, outpacing the more modest gains of the S&P 500 and Dow. The ISM Services PMI in the US surged to 53.8 in May 2024, its highest level in nine months and exceeding forecasts of 50.8. This reading indicates a rebound in the services sector, recovering from the first contraction since December 2022, driven by higher business activity, faster new orders growth, and slower supplier deliveries.
Fresh data on the US labor market suggested that employment conditions remain strong but are gradually loosening. Jobless claims rose by 8,000 to 229,000 in the week ending June 1, and the unemployment rate increased to 4% in May, the highest since January 2022. However, the US economy added 272,000 jobs in May, significantly higher than the forecast of 185,000. This new labor market data suggests that while employment conditions remain strong, there are signs of gradual softening beneath the surface.
The Hang Seng closed the week up 1.60%. China’s balance of trade data painted a mixed picture. Exports rose by 7.6% year-over-year in May, beating expectations for 6% growth, a positive development for manufacturing. However, import data increased by only 1.8%, indicating that domestic demand remains relatively weak.
In Ireland, data revealed that Gross National Product (GNP), a more accurate gauge of Irish output due to the significant impact multinational corporations have on GDP, expanded by 3% from the previous quarter in the three months to March 2024.