Global stock markets rose last week, but there was huge divergence beneath the surface. Large US technology stocks drove gains in the US market, whilst European share markets were hit by snap elections in France and the prospect of a change in Parliament. This week the focus will be on the UK, with the Bank of England meeting on Thursday as well as the release of the inflation data on Wednesday.
Last week
- Global stock markets rose last week, with the US technology sector driving gains.
- US inflation came in below expectations.
- The US Federal Reserve kept interest rates on hold at 5.5%.
- European share markets performed poorly.
- Bond markets rose, with sovereign bonds performing best.
This week
- The Bank of England meets on Thursday. We expect interest rates to be held at 5.25%.
- It’s a busy week for UK economic data. Inflation is out on Wednesday: with expectations that CPI will fall to 2% (from 2.3%) and then Retail Sales data is out on Friday. Alongside this, Consumer Confidence data (which has been trending upwards) is out on Thursday.
- Eurozone consumer confidence data is out on Thursday.
- US housing data is released on Friday.
- Next week is very light on the corporate calendar as regards scheduled reporting.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
More detail:
- Global stock markets rose modestly last week (up 0.7%), with huge divergence beneath the surface; both at a regional and a sector level. The US share market was up by 1.9%, with the bulk of the gains coming from large-cap technology shares. Conversely, European (ex UK) share markets were down by 3.4%, dragged lower by the strong showing of far-right parties in the European Parliament elections and the calling of French snap elections (the French CAC 40 fell by 6.9% on the week).
- US technology stocks had 2 key positive drivers last week: excitement over artificial intelligence and the prospect of lower interest rates following lower-than-expected inflation numbers. Having been a relative laggard this year, Apple (the 3rd biggest company in the US share market) unveiled last week “Apple Intelligence”, their new AI software suite. This saw the stock rise by 8.2% on the week, with AI chip manufacturer Nvidia up by 9.4% on the week. More broadly, technology shares got a general boost from the prospect of lower interest rates, with 2 interest rate cuts now being priced into US markets by the bond futures markets as at the end of last week.
- US inflation (CPI) came in below expectations for the first time since October last year, with a reading of 3.3% (vs expectations for a reading of 3.4%). Importantly, the monthly reading (0.0%) was the lowest reading that we’ve seen since July 2022. Core US inflation (which strips out food and energy) came in at 3.4% which is the lowest reading since April 2021, hence there were real signs of progress on this front. These lower US inflation numbers (combined with some weaker jobs data later in the week) led to bond yields falling as the bond market priced in a faster pace of interest rate cuts.
- The US Federal Reserve kept rates on hold (at 5.5%) and weren’t swayed by the inflation data (which only came out a few hours before their decision was released). The Fed did issue their updated “dot plot” (their summary of economic projections) which pointed to just one interest rate cut in the US this year, with 4 interest rate cuts next year. The bond market took encouragement from the Fed still looking to cut interest rates and then the subsequent weak economic data which followed helped boost the bond market and boost technology and “growth” shares.
- The UK gilt market rose by 1.6% last week, with US Treasuries rising by 1.3%. Credit markets were positive on the week, but rose by less than sovereign markets, with spread widening offsetting the fall in bond yields. The UK 10-year bond yield closed out the week at 4.05% and the US 10 year bond yield closed out the week at 4.22%.
The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.
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