Weekly Markets Review

13th May 2024

Markets last week

• Global equities delivered 2.0%, supported by a stable bond market

• The Bank of England’s (BoE) Monetary Policy Committee left UK interest rates unchanged at 5.25%

• The UK economy grew 0.6% in the first quarter, rebounding more than anticipated following last year’s mild recession

• UK equities performed well, delivering 2.6%, with utilities, industrials and materials being the best performing sectors

• Expectations of a European Central Bank (ECB) rate cut in June have been bolstered by the reveal of the minutes from the most recent ECB meeting

• European equities rose 3.5%, with utilities and industrials the best performing sectors

• Gold performed well and remains slightly below its mid-April peak

• US Consumer Price Index (CPI) inflation for April is expected to hold steady at 0.4%

• Year-over-year US CPI inflation is projected to decelerate slightly, from 3.5% to 3.4%

• The Federal Reserve’s (Fed) desire to lower rates is contingent upon the evolution of inflation data in the coming months. This week’s US CPI release is pivotal in shaping market sentiment.

---

Analysis

It was a good week for global equities, which delivered 2.0%, benefitting from a stable bond market. This stability followed an aggressive bond rally the previous week, which was triggered by softer-than-expected US payrolls data and an uneventful meeting of the Federal Open Market Committee (FOMC). The FOMC is responsible for setting monetary policy in the US.

Last week, it was the turn of the BoE’s Monetary Policy Committee, which met on Thursday to consider a change in interest rates. The committee left UK interest rates unchanged at 5.25%. Although it was a meeting with few surprises, the atmosphere was positive. There was some anticipation for a more dovish shift from the BoE, but sticky services inflation and wage data have kept a lingering note of caution. Nonetheless, the progress on inflation has been promising and there is optimism that the BoE will be able to cut rates later this year. The swap market is pricing in two cuts for 2024, with the first priced in for August and the second expected in December.

The good news is that inflation in the UK has fallen from 4% in January to 3.2% in March, whilst the UK economy has simultaneously bounced back from the mild recession seen in the second half of last year. The UK economy grew 0.6% in the first quarter -ahead of expectations- and is recovering from -0.3% in the last quarter of 2024. It was predominantly the output of services that led the economy’s recovery, with household spending power recovering and price pressures easing. Outside of services (the UK’s largest sector), industrial production also grew, whilst construction output dropped.

With this encouraging backdrop, UK equities performed particularly well, delivering 2.6%. There was positive performance across all sectors, but utilities, industrials and materials were the best performing, while real estate and technology lagged. The strong run in the last few weeks has meant that the UK market has now roughly caught up with international peers year-to-date. The global nature of the largest companies listed in the UK, along with the relative valuation discount, is beginning to attract the attention of global investors looking for exposure to global economic growth at an attractive price. The UK has also benefitted as the focus has shifted away from technology in favour of a more broad-based rally, in which previously lagging sectors have started to outperform.

In Europe, expectations of an ECB rate cut in June have been bolstered by the release of the minutes from the most recent ECB meeting. Although a cut in June seems almost a ‘done deal’, there is less clarity on the path beyond. European equities posted an excellent week on the back of this optimism surrounding a June rate cut. The market was also supported by a host of strong earnings reports and the fact that earnings season has been surprisingly strong. European equities rose 3.5%, with utilities and industrials the best performing sectors.

Gold performed well last week but remains slightly below its peak of US$2391.9, achieved in mid-April. Gold is currently trading at a price of US$2.360.5 per ounce after a 2.6% gain last week, taking year-to-date performance to 14.4%. Gold is benefitting from several factors, including heightened geopolitical uncertainties, strong demand from retail investors, particularly in China and India, and record demand from central banks.

---

The Week ahead

Wednesday: US CPI inflation

Our thoughts: The monthly headline CPI inflation for April is expected to hold steady at 0.4%, while year-over-year inflation is projected to decelerate slightly from 3.5% to 3.4%. A significant boost to the headline figure is anticipated from food prices, particularly due to California restaurants raising prices following a 20% increase in the state's fast food minimum wage. Core inflation is forecast to slow a little.

The CPI report is not expected to strengthen policymakers’ confidence in rate cuts, although recent softer US economic data has indicated a potential moderation in economic activity, albeit from a particularly strong starting point. The Fed's desire to lower rates is contingent upon the evolution of inflation in the coming months. Therefore, this week's US CPI release is considered pivotal in shaping market sentiment.

---

Your weekly market review was powered by Canaccord Genuity Wealth Management (CGWM)

---

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable. Past performance and future forecasts figures are not a reliable indicator of future results.