Weekly recap of world’s major stock markets; China, USA, Japan and Europe.
U.S.
Growth stocks outperformed
Stocks ended higher following a volatile week with economic and earnings data. Growth stocks outperformed value shares, and small-caps outpaced large-caps, lifting the Russell 2000 Index slightly positive for 2024. Apple’s earnings release and Tesla’s surprise appearance in China contributed to a rebound in sentiment, with investors enthused by Apple’s largest share repurchase in history.
Nonfarm payrolls
Stocks rose on signs of easing wage pressures, with the nonfarm payrolls report showing employers added 175,000 jobs in April, the lowest number since November. This signaled a cooling labor market and lower inflationary pressures. However, investors were more pleased by a slowdown in monthly wage increases, from 0.3% in March to 0.2% in April. The year-over-year gain fell to 3.9%, the slowest increase in almost two years. Stocks fell sharply on Tuesday after the Labor Department reported employment costs rose 1.2% in the first quarter.
Powell Speech
Federal Reserve Chair Jerome Powell defended stagflation concerns in a press conference following a two-day policy meeting, citing current growth and inflation rates of around 3%. Powell also stated that policymakers were not prepared to cut rates and did not see the need to increase rates due to the “sufficiently restrictive” monetary policy. The cooling jobs market led to a low yield on the 10-year U.S. Treasury note and improved returns in the tax-exempt municipal bond market.
Europe
The pan-European STOXX Europe 600 Index ended 0.48% lower due to mixed corporate earnings and interest rate uncertainty. Major stock indexes weakened, with Germany’s DAX weakened, France’s CAC 40 Index lost, and Italy’s FTSE MIB declining. European government bond yields declined due to concerns about central bank interest rate increases.
Eurozone economy
The Eurozone economy regained momentum after a technical recession, with GDP expanding 0.3% in Q1 2023. Core inflation, excluding energy and food prices, slowed to 2.7%. The European Central Bank (ECB) is confident that inflation will return to the 2% target by next year.
UK housing market
UK housing market recovery slows, with mortgage lenders approving 61,325 mortgages in March, an 18-month high. However, April’s house price index fell 0.4%, indicating moderating activity.
Norges Bank maintains key interest rate at 4.50%, indicating potential longer borrowing costs to combat inflation.
Japan
Japanese stocks experienced positive returns due to perceived foreign exchange market interventions, with the Nikkei 225 Index rising 0.8% and the TOPIX Index gaining 1.6%. The Bank of Japan’s accounts suggested these interventions, but authorities did not confirm. The yen strengthened to around JPY 153 against the USD. The 10-year Japanese government bond yield remained unchanged at 0.9%, near a six-month high. Japan’s monetary policy remains accommodative.
Corporate earnings
Japan’s large public companies reported higher profits in the latest earnings season, largely due to factors such as weak yen, price hikes, and a rebound in inbound tourism. However, some companies faced competition, particularly in China, and currency depreciation.
China
Chinese stocks rose in a holiday-shortened week, with the Shanghai Composite Index and CSI 300 gaining 0.52% and 0.56% respectively. The government’s top decision-making body, the Politburo, pledged to implement prudent monetary and fiscal support to boost demand, including possible interest rate cuts and reserve requirement ratio adjustments.
Manufacturing Purchasing Managers’ Index (PMI)
The official manufacturing Purchasing Managers’ Index (PMI) and private Caixin/S&P Global survey showed a better-than-expected reading of 50.4 and 51.4 respectively in April, marking the second consecutive monthly expansion. However, slowing industrial profits growth indicates deflationary pressures on China’s economy.
Home sales
China’s top 100 developers’ new home sales fell 45% in April, causing a 13% decrease in transactions. The fourth-year housing downturn has left consumers reluctant to spend and a massive supply of unfinished apartments.
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