Weekly recap of world’s major stock markets; China, USA, Japan and Europe.
U.S.
Stocks broke a losing streak
The S&P 500 Index and other major benchmarks broke a losing streak following the busy first-quarter earnings reporting season. Analysts expect overall earnings to increase 3.7% in Q1 compared to the previous year. The Nasdaq Composite Index performed best, with Apple’s strength and NVIDIA’s rebound. Alphabet’s earnings and dividend payment surged, while Facebook parent Meta Platforms fell sharply due to Zuckerberg’s spending on AI.
Some time bad news is good for market
The week began with strong buying due to investors capitalizing on tech sector declines and short covering bets. On Tuesday, downside surprises in economic data were interpreted as good news due to reduced pressure on inflation and interest rates. However, on Thursday, bad economic news was treated as bad news, with the Commerce Department’s estimate showing a 1.6% annualized growth rate in Q1, well below consensus estimates. The slowdown in government spending and widening trade deficit contributed to this slowdown.
Fed’s preferred inflation gauge
The Commerce Department’s personal consumption expenditures (PCE) index rose 3.7% in Q1, above expectations and the Federal Reserve’s 2% long-term inflation target. This news sparked a rebound in stocks, with futures jumping after the release of monthly PCE data. Core PCE inflation continued to decline in March, falling to 2.82%. The yield on the 10-year U.S. Treasury note decreased slightly, but ended the week near its highest level in six months. Strong retail and institutional demand for new deals in the tax-free municipal bond market was also noted.
Europe
The pan-European STOXX Europe 600 Index ended 1.74% higher, driven by easing Middle East tensions and encouraging corporate earnings. Major stock indexes also advanced, with Germany’s DAX gaining 2.39% and France’s CAC 40 Index adding 0.82%. European government bond yields reached their highest levels this year.
Eurozone PMIs, German data improve
Business activity in the eurozone grew at its fastest pace in nearly a year in April, driven by a recovery in the services industry, according to S&P Global’s surveys. Germany’s PMI and the Ifo Institute’s barometer of business confidence suggest the country’s economic downturn may be bottoming out, with overall business sentiment improving for a third consecutive month.
Rate cuts in June-ECB
ECB policymakers anticipate lowering interest rates in June, despite economic uncertainties. However, hawks are cautious about subsequent borrowing cost reductions. German Bundesbank President Joachim Nagel suggests a decision in June may not necessarily lead to rate cuts.
UK business activity increased
UK business activity increased at its fastest pace in almost a year, reaching 54.0, while input costs increased at the fastest pace in 11 months, while output prices declined, indicating weakening demand is affecting business margins.
Japan
Japan’s stock markets gained due to yen weakness, with the Nikkei 225 Index and TOPIX Index returning 2.3%. The Bank of Japan remained dovish at its April meeting, but Governor Kazuo Ueda suggests increased confidence in raising interest rates in the second half of the year. The 10-year Japanese government bond yield rose to 0.91%.
Yen at 30 year’s lowest levels
Authorities have refrained from intervening in currency markets to support the historically weak yen, despite speculation about such actions. The yen has weakened to JPY 156.8 against the USD, and the central bank will continue monitoring foreign exchange markets and their impact on the economy.
Inflation in Japan showed signs of easing in April
Inflation in Japan showed signs of easing in April, with the Tokyo-area core consumer price index rising 1.6% YoY, primarily due to subsidies. The manufacturing sector stabilized, while the services segment strengthened. The composite PMI rose to 52.6, and hiring increased across the private sector. Business confidence remained positive, suggesting sustained expansion in activity in the near term.
China
Chinese stocks rose due to increased optimism about the economy, with the Shanghai Composite Index increasing by 0.76% and the CSI 300 adding 1.2%. The economy is expected to grow 4.8% this year, with a 5.3% growth in the first quarter. However, inflation forecasts have been downgraded due to declining producer prices and a persistent property market slump. Chinese banks have left their one- and five-year loan prime rates unchanged, indicating a more cautious approach to monetary policy. The central bank withdrew cash from the banking system for a second consecutive month in April.
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