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Team Asset Management offer their weekly round-up of global markets
GLOBAL stocks rose for a third straight week, albeit a bit more cautiously, as many investors kept their powder dry ahead of interest-rate decisions in the US and Europe. The blue-chip S&P 500 and technology-focused Nasdaq indices returned 1.5% and 1.8% respectively.
Federal Reserve officials will meet today and will announce their latest interest decision this evening. The FOMC has raised interest rates at every meeting since March 2022, from a starting point of 0.5% to 5.25%, in a bid to curb inflation but is expected to pause and make no changes this week.
On one hand, annual headline inflation rate in the US has trended lower since last summer, mostly owing to falling energy prices, and is expected to slow further this month to a two-year low of 4.1%. However, the core inflation rate, which excludes volatile items such as food and energy, is still uncomfortably high at 5.5%, barely moving since December. The strength of the employment market also suggests there will continue to be upwards pressure on wages.
If the Fed does pause this week, a 75% chance according to money market futures, it is expected to hike interest rates once more in July before changing direction late in the year.
The European Central Bank will announce its interest-rate decision tomorrow and markets see a 0.25% hike as a near certainty. Headline inflation in Europe is also trending lower, from a peak of 10.6% in October to 6.1% in May, but it remains a long way above the ECB’s 2% inflation target.
If either central bank avoids a surprise interest-rate decision, it will be the forward guidance that moves the dial. Any suggestions that they are close to ending their rate-hiking cycles would be a boost while more hawkish messages would probably send stocks back into reverse.
Closer to home, interest-rate hikes are being felt more acutely in the property market. According to Halifax, UK house prices fell 1% in the 12 months to May, the first year-on-year decline since December 2012. The average rate for new mortgages increased to 4.5% in April, the highest level since 2008, and several lenders have temporarily pulled mortgage deals for new borrowers.
The rising cost of living has stung many retailers this year but there are some that continue to thrive, including Inditex, the owner of Zara. The Madrid-listed fashion giant reported a 54% jump in net profit to 1.2 billion euros in the three months to 30 April.
Shares in Inditex, which started out as a clothing workshop operating out of the family home in the 1960s, rose another 6% on Wednesday, extending its year-to-date gains to 38%. It now has a market value of 105 billion euros, trailing just LVMH, Nike and Dior in the clothing sector.
FirstGroup was one of the stand-out performers on the London Stock Exchange last week. Shares in the bus and train operator jumped more than 13% on Thursday after it announced that profits had more than doubled to £82.1 million in the year to 25 March.
The company wholly operates the Great Western Railway franchise and owns the main share in Avanti West Coast and South Western Railway. The Department for Transport announced it would not renew its contract to operate the TransPennine Express operation in northern England owing to numerous train cancellations but it has had much better success with its Lumo service running between London and Edinburgh.
Brent crude prices fell back to $72 a barrel, its lowest level since December 2021. The short-term bounce after Saudi Arabia announced it would cut production by one million barrels a day was short-lived, as investors switched their focus to weaker demand from China and a glut of supply from sanctioned countries, including Russia.
