Market Update

UK Markets
UK markets struggled to gain momentum despite revised data showing the British economy grew by 0.7% in Q1 2024, up from an earlier estimate of 0.6%. This represents the strongest expansion in over two years, officially marking the end of last year’s recession. Growth was primarily driven by the services sector, which expanded by 0.8%. The improved GDP figures signal a stronger recovery, boosting optimism among market participants.
The upcoming UK general election on July 4 has drawn attention, with polls indicating a likely Labour Party victory. Markets appear unfazed by this outcome, as a Labour majority has been largely priced in, minimizing the potential for significant disruption.
US Markets
US stocks showed strong gains early on Friday but ultimately closed lower. Investors reacted to the release of May’s Core Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred measure of inflation. The Core PCE index rose by 0.1% month-over-month, the smallest increase since November 2023, down from April’s 0.2% rise and a sharp slowdown compared to the 0.3% monthly gains recorded earlier this year. On an annual basis, core PCE inflation dropped to 2.6% in May from 2.8% in April, reinforcing hopes of easing inflationary pressures.
Personal income climbed 0.5%, outpacing a 0.2% increase in personal spending. This suggests consumers maintain spending power, though the rising savings rate raises questions about whether the shift reflects economic caution or growing financial strain.
The data supports a cooling inflation narrative, which, if sustained, could set the stage for the Federal Reserve to consider interest rate cuts later in the year. This prospect has buoyed market sentiment, with traders anticipating a potential boost to economic growth.
The US banking sector also saw positive developments as the Federal Reserve announced that all 31 large US banks passed its latest stress tests. This outcome, which keeps banks above minimum capital requirements, reassures markets after last year’s banking turmoil and could pave the way for shareholder returns via dividends and buybacks.
European and French Markets
European markets ended the week lower as investors turned cautious ahead of the first round of France’s snap parliamentary elections on Sunday. The elections, called by President Emmanuel Macron, followed Marine Le Pen’s National Rally (RN) success in the European elections. The National Rally secured over one-third of the vote in the first round, establishing itself as a dominant political force. However, it remains uncertain whether they can achieve a majority to form a government. The second round of voting is scheduled for July 7.
Asia-Pacific Markets
Asia-Pacific markets saw strong gains on Friday, driven by encouraging economic data from Japan. The TOPIX index surged 3.1%, bolstered by higher-than-expected retail sales in May and an uptick in inflation. Consumer prices in Tokyo, excluding fresh food, rose 2.1% in June, up from 1.9% in May, fueled by rising energy costs. Industrial output also exceeded forecasts, adding to the positive sentiment.
This robust data has prompted speculation that the Bank of Japan may consider an interest rate hike in July, signaling a shift in its traditionally accommodative monetary policy.