Markets last week
- Equity markets were generally buoyant either side of Juneteenth, a day of respite as US exchanges were closed to commemorate the end of slavery
- The Nasdaq started the week on strong footing, reaching consecutive record highs on Monday and Tuesday, with Artificial Intelligence (AI) continuing to grab headlines
- Economic data was mixed, as US industrial production and manufacturing output both rose in May. Across the pond, the UK saw inflation fall back to target in conjunction with a rise in retail spending. Conversely, the Philly Fed business conditions index declined and there was a rise in continuing jobless claims
- Flash Purchasing Managers Indices (PMI) produced a subdued picture outside of the US, which was generally positive and in growth territory, whilst Europe and the UK showed signs of a slowdown
- Treasury yields notched higher, particularly on Thursday, as the market braced for an upcoming note auction
- The European Central Bank’s chief economist stated that there was no need for a French rescue package, amidst recent market turmoil
- Commodities saw another week of gains, with an oil price increase prompted by signs of improving demand and heightened geopolitical tensions.
The week ahead
There are a number of important US data points coming out this week, including consumer confidence (Tuesday), initial jobless claims and the second revision of Gross Domestic Product (GDP) (Thursday), and Personal Consumption Expenditure (PCE) inflation (Friday). The market is expecting a decrease in consumer confidence, an increase in jobless claims, and further progress to be made on inflation. GDP growth is expected to remain flat for Q1.
US
The S&P 500 hit all-time highs yet again, peaking at 5501 with Nvidia leading the AI charge, before retracing towards the end of the week. The chipmaker is now up more than 150% for the year, and briefly surpassed Microsoft as the most valuable public company in the world on Tuesday. Commentators note that there are technical indicators which suggest the AI rally is overextended, which has been followed by heightened profit taking.
Industrial production rose 0.9% in May, whilst Manufacturing output posted an identical gain, after two months of consecutive decline. Capacity utilisation moved up to 78.7% in May, a rate that is only 0.9% below the long-run average according to the Federal Reserve (Fed).
There were other encouraging US data points, including June’s flash PMI’s which were above consensus, with the composite at 54.6 vs 53.4 expected. This is the highest reading since April 2022. Furthermore, Factset reported on strong inflow trends, with global equities attracting more than $25bn in the latest week, with US growth and tech funds seeing record inflows. This correlates favourably with the latest Bank of America (BoFA) Fund Manager Survey, which showed that investors are most bullish on markets since 2021.
Economists were keen to establish a cautious tone, however, pointing to a decline in the Philly Fed business conditions index and housing starts, as well as a rise in continuing jobless claims, which are all indicators of a slowing economy.
US treasury yields moved higher across the board, as investors sought to rebalance portfolios ahead of a large $183bn auction of two-, five- and seven-year notes in the week commencing 24 June.
Europe
European markets recovered some ground following President Macron’s snap general election announcement, but volatility increased by Friday as weaker eurozone PMIs added to investor worries on the region. The flash composite PMI came out at 50.8 vs 52.5 consensus, whilst manufacturing fell to a six-month low of 45.6 vs 47.9 expected.
UK
Headline inflation fell to 2% and hit the Bank of England’s target for the first time in two and a half years. Economists have continued to express concerns over the stickiness of the ‘core rate’, as it remains above 3%. Irrespective, the Monetary Policy Committee left the base rate unchanged in a 7-2 split.
Retail businesses recovered strongly last month, as better weather, falling inflation and rising confidence all contributed to higher spending. Sales were up 2.9% vs a 1.5% consensus, with clothing and furniture retailers doing particularly well.
Flash PMIs showed a continued slowdown in services, and its weakest print in seven months. The composite PMI came in at 51.7 vs a consensus of 53.1. Service oriented firms blamed a slowdown on client spending decisions being paused during election uncertainty.
Japan
The Topix ended the week in marginal negative territory, continuing the trend which saw the index finish -2.6% for the month to date.
Headline inflation increased to 2.8% year-on-year in May, from 2.5% in April, whilst the core reading eased to 2.1% from 2.4% in the prior month. This difference was attributed to higher oil prices.
Surprisingly, the flash manufacturing PMI fell to 50.1 in June, from 50.4 in May, whilst services swung to a contraction for the first time since August 2022, as business confidence fell to its lowest point since March 2022. New orders exhibited weaker growth, and there have been reports of further margin pressure.
The yen made headlines again, as it neared a 34 year low against the dollar, coincidentally approaching the 160 level which investors suspect triggered intervention back in April.
Emerging Markets
Emerging markets equities were volatile, but generally ended the week in positive territory. India saw a near-record rise in private sector employment as sales growth strengthened, according to HSBC. Flash surveys for both services and manufacturing increased for May.
Meanwhile, Chinese developers faced further woes in what was reported as a ‘make or break’ week in liquidation cases, whilst two global credit rating firms lowered forecasts for China’s property market.
Commodities
The gold price reached $2360 on Friday afternoon, which is near a two-week high. Meanwhile, the oil price had risen from over $77 at the beginning of the month to near $83. This was primarily predicated on the US Energy Information Administration reporting a drop in stockpiles of 2.5m barrels. Geopolitics also fuelled gains after Israel confirmed that operational plans for an offensive in Lebanon had been approved.
Copper reached an eight-week low after further soft data emerged from China, specifically relating to demand recovery and industrial output.
Markets for the week
Sources: FTSE, Canaccord Genuity Wealth Manageme