As we inch closer to completing the first half of 2024, the US economy continues to surprise to the upside, while stocks flirt with all-time highs. Wall Street’s three major indexes returned record gains this month with technology stocks taking the lead. The S&P 500 advanced 5% in May, and the Nasdaq Composite rallied approximately 8.5% while crossing the 17,000 threshold for the first time. The Dow Jones Industrial Average has increased by 3.3%, crossing the 40,000 mark for the first time.
Nvidia shares exceeded $1,000 for the first time, last week, as their fiscal first quarter results beat expectations with revenue coming in at $26.04 bn. The chipmaker reported a whopping 262% jump in sales and announced a 10-for-1 stock split. Nvidia alone has accounted for a quarter of the S&P 500’s gains this year, while the “Magnificent Seven” tech darlings are up 24% for the year.
The release of the minutes of the Fed’s latest policy meeting caused Fed rate jitters across the world overnight with bourses in Japan and China losing more than 1% at the close of last week. Market sentiments were dampened as interest rate worries returned on the back of robust US economic data.
The FTSE 100 index was marginally up by 0.93% for the month but fell for 4 straight sessions in its longest losing streak since February as receding expectations of interest rate cuts across major economies and political uncertainty ahead of the general elections at home weighed on investor sentiment. A solid crop of first-quarter and full-year earnings has also put the Europe Stoxx 600 index on course for a monthly gain of over 2%.
Federal Reserve officials are growing more concerned about their progress — or the lack thereof — on inflation moving towards the committee’s 2% target. The minutes of the Fed’s policy meeting showed signs that some policymakers were willing to lift rates again, if necessary, not least due to a loosening of financial conditions evident in surging stocks. The impact was, however, muted as the meeting was before the softer April inflation data. Fed Chair Jerome Powell and other policymakers have since said they feel further increases are unlikely. “July is likely off the table, but as Jerome Powell has said, with improving inflation data over the summer, a September rate cut has a fighter’s chance.” Higher interest rates continue to leave mortgage and other borrowing costs elevated, which can slow economic activity and dampen demand for oil.
Stickiness in UK inflation report and the announcement of the general election has increased uncertainty and wiped out hopes of a June BoE rate cut. On the other hand, the European Central Bank is widely expected to cut rates at its June meeting although there was a degree of caution, as board member Isabel Schnabel warned that back-to-back cuts did not seem warranted. Japan’s core inflation slowed for a second straight month in April, meeting market expectations – and staying above the central bank’s target at 2.2% year-on-year (YoY).
New orders for key U.S.-manufactured capital goods rebounded more than expected in April and shipments of those goods also increased, suggesting a surge in business spending on equipment early in the second quarter. Additionally, U.S. business activity accelerated to the highest in more than two years in May, fanning fears that the economy may be heating up once again. Eurozone May business surveys also showed activity expanded at its fastest pace in a year this month, while UK equivalents slowed. British sales volumes unexpectedly fell across all sectors in April, as wet weather kept deterred shoppers.
Chinese retail sales rose 2.3% YoY in April according to data published by the National Bureau of Statistics (NBS), below the 3.1% registered in March and market expectations for a 3.8% increase. The data marked a new post-pandemic low, with auto sales falling 5.6% YoY and acting as the largest drag. While demand for autos is falling, supply in China is rising and driving stronger industrial production data. Industrial production rose 6-7% YoY in April accelerating from March’s 4.5% growth and ahead of market expectations for a 5.5% increase.
As trade tensions between the United States and China escalate, China is shrinking its holdings of U.S. bonds, highlighting its move to diversify away from American assets and increasing its reserves in gold. The latest official U.S. capital flows data show that China’s stash of U.S. Treasuries and agency bonds in the first quarter of this year fell by just under $40 billion and $10 billion, respectively. The share of the precious metal in the nation’s official reserves climbed to 4.9% in April, the highest according to central bank data going back to 2015.
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