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Matthew Boxall, of Team Asset Management, offers this week’s markets review
MAJOR market indices closed the week mostly higher, with the Nasdaq advancing the furthest, up 2.2%, and the S&P500, Nikkei and Euro 50 climbing 1.5%, 0.3% and 0.3% respectively. The UK’s FTSE100 declined -0.4%.
US economic releases provided data-hungry markets with mixed inflation signals. First, there was a softening in US labour markets which sparked hope of a potential cut. The number of nonfarm job openings fell again in April, remaining just above their pre-pandemic peak. Notably, the ratio of available jobs to unemployed workers dropped from 1.30 to 1.24, the lowest level since June 2021, and indicative of a softening employment market.
This was viewed as positive news for a Federal Reserve which is seemingly desperate to cut interest rates.
Unfortunately for chairman Jerome Powell and colleagues the good news was short-lived, as the US nonfarm payrolls report for May came in hotter than expected on Friday. Bond yields spiked sharply and money markets moved quickly to slash the odds of a September rate cut.
Meanwhile, the European Central Bank, led by president Christine Lagarde, cut its key interest rate by 0.25% for the first time since 2019. While this is clearly a positive sign in terms of the direction of travel, investors cannot relax just yet.
The crucial factor for markets is the number and timing of future rate cuts, which will depend on the path of inflation. While high food and energy prices have cooled in recent months, wages have taken over the baton as the main driver of upside price pressures. When wages increase, people have more money to spend, which can fuel inflation, and firms must adjust prices higher to offset higher employee costs. Against this backdrop, the ECB revised its own inflation forecasts to remain above the 2% target for this year and next.
What do Mexico and India have in common besides great food? Both saw their stock markets drop 6% in a single day owing to election results. In Mexico, Claudia Sheinbaum and her allies secured a landslide victory as expected. However, it was the scale of her victory that has sparked concern.
In India, Prime Minister Narendra Modi will be re-elected for a third term, but his party is unlikely to secure the overwhelming majority markets were pricing in ahead of results. This may disrupt his ability to execute his push for investment-led growth.
The European Union parliamentary elections over the weekend also moved markets, none more so than the heavy defeat of French President Emmanuel Macron’s centrist alliance by Marine Le Pen’s National Rally party. Macron responded by dissolving parliament and calling a snap election, triggering a sell-off in French stocks and government bonds on Monday.
Zooming into stock markets, GameStop, the original “meme stock” of late 2021, is officially back from obscurity following a cryptic post from the infamous meme stock trader Keith Gill, also known as Roaring Kitty. By last Thursday, Roaring Kitty’s apparent position had more than tripled to over $700m. GameStop’s management team capitalised on the retail trading frenzy, announcing some disappointing quarterly results earlier than planned and separately raised capital through a massive share issuance.
NVIDIA once again made headlines, briefly overtaking Apple as the world’s second-most valuable company by market capitalisation after it crossed the three-trillion-dollar mark. To put this in perspective, NVIDIA has added the equivalent market capitalisation of retail titan Amazon in just six months.
Turning to the commodities, OPEC+ continued its efforts to avert a global oil surplus and shore up prices by outlining plans to reduce oil production by approximately two million barrels per day and extend these cuts to the end of 2025. However, it didn’t stop the price of brent crude falling below $80 per barrel for the first time this year.
In the cryptocurrency space, Bitcoin slumped towards the end of the week on the back of the US data after pushing above $70,000 but recovered some of its gains to close the week 1% higher. Elsewhere in the crypto universe, a consortium of AI-related coins announced a merger to combat the dominance and centralisation of AI from the likes of Microsoft (ChatGPT) and Alphabet (Gemini).
The week ahead will bring a US Federal Reserve policy meeting that concludes today and a key consumer inflation report also due to be released this morning. The Bank of Japan interest rate decision is due on Friday. In the corporate world, we expect to see earnings from Oracle and Adobe.
