The major markets in the US were all positive this week, with the tech-heavy Nasdaq advancing furthest, up 3.44%, with the S&P500 and Dow Jones Industrial Average pushing up 2.11% and 0.38%, respectively. The key catalysts for the performance were strong quarterly reports from the likes of Alphabet and Microsoft that allayed concerns over AI spend, and Tesla, who recently cleared China’s data security requirements for its Model 3 and Model Y cars, signalling a significant step forward towards being able to deploy Tesla’s full self-driving software in China, the world’s largest electric-vehicle market.
Looking deeper into corporate earnings season, Meta (previously named Facebook) was the first of the world’s trillion-dollar market capitalisation companies to report. Meta largely met elevated expectations, with earnings that more than doubled from the previous year and sales that exceeded forecasts, increasing 27% year-over-year, and marking the fifth consecutive quarter of revenue growth acceleration.
In a broader move to innovate, Meta launched the third version of its Llama system last week, an open-source large language model aimed to rival ChatGPT. Development costs are significant, stirring investor apprehension.
In the UK, the FTSE100 advanced 3.09%, its largest one week gain since September last year, buoyed by positive earnings results noted in the US, the Darktrace’s +17% rally after an announced $5.32bn buyout deal by Thoma Bravo, and BHP Group’s brazen approach to acquire Anglo American plc in an attempt to secure copper supplies.
From an economic perspective, US GDP growth slowed to its weakest pace in two years during Q1, while a closely followed measure of inflation during the same period stoked investor anxieties about stagflation. Late in the week, Treasury Secretary Janet Yellen, in a well-publicised Reuters interview, looked to sooth these concerns by maintaining that economic fundamentals were conducive to inflation returning to normal levels.
Across the Channel, UK business activity strengthened in April, at its fastest pace in almost a year. However, data suggests that demand is weakening as declining output prices slumped, which is signalling that weaker demand is squeezing business margins.
Turning our eyes east, the Japanese yen has weakened significantly this year, dropping 10% to a 34-year low. Despite falling to its all-time low, it is not all doom and gloom, as a weakened Yen attracts bargain-hunting foreign investors to invest in Japanese stocks, many of which are manufactures with a global presence, meaning it boosts the value in their overseas revenue when converted back to Yen. However, if the currency becomes too weak, it could have broader economic consequences, shaking investors’ confidence in the region, bolster inflation and dent consumer spending. The market remains bearish of the currency with 84% of professional traders, continuing to speculate short, insinuating that the Yen will go lower still.
In the cryptocurrency markets, bitcoin failed to reverse its downward trend of the past few weeks, closing the week at $62,943.49. Some analysts believe that outflows in the US listed ETFs are significant contributor to the ongoing downward pressure on crypto assets, with a further $217m seen in outflows, while others believe that the broader macroeconomic environment are contributing to the correction, including sombre GDP growth and potential inflation scares.
Elsewhere, Rap artist Eminem has partnered with crypto exchange Crypto.com to release an advert that contains motivational dialogue, yet nothing about cryptocurrency specifically. Such developments can indicate frothy conditions and market peaks. However, given the current market’s choppy conditions, some participants believe that increased mainstream exposure could have a bullish, rather than bearish, effect. Is it one shot or one opportunity, only time will tell.
Looking forward to the week ahead, there is a myriad of key economic data being released around the world with the Eurozone kicking things off with its economic sentiment on Monday, GDP, and inflation on Tuesday. In the US the Fed will be releasing their interest rate decision on Wednesday. However, with recent inflation and labour market jobs reports, the anticipated three rate cuts are looking unlikely, and the market is assuming rates will remain at their two-decade high. The US will also be releasing non-farm payrolls data and the unemployment rate.
From a corporate earnings perspective, we have Amazon, McDonald’s, Starbucks, Mastercard and Apple amongst the bigger names reporting, which will likely influence the path ahead for asset prices in the coming weeks.
