At its policy meeting the central bank opted to hold the federal funds target rate steady at 5%-5.25%, following ten consecutive hikes. The “dot plot” however indicated that policymakers were expecting two more quarter-point rate hikes this year. Stocks also found support after data released on Thursday showed signs of the labour market cooling down and a moderation in consumer spending, which could in turn lessen the need for two more hikes from the Fed.
On Thursday the major US stock indices had hit their highest levels of the year, and indeed Apple and Microsoft saw record highs. The following session did see a pullback in the two heavyweights, weighing on indices. Nevertheless despite Friday’s small dip the S&P 500 ended the week 2.6% higher, its largest weekly gain since March. The Nasdaq rose 3.2% in its eighth consecutive weekly gain. The yield on the 10-year Treasury note ended slightly higher at 3.77% while the US dollar index was down around 1%.
There was also central bank action in Europe, where the European Central Bank lifted its refinancing rate by a quarter-point to 4%. The ECB also signalled that there was more still to be done in its fight against inflation, with it likely to raise rates again in July unless there was a “material change” to the economic data. This sent government bond yields higher, with the 10-year German bund climbing above 2.5%. The pan-European STOXX 600 index was up 1.5% for the week. In the UK, the economy rebounded in April, while annual average wage growth increased at a pace of 7.2% in the three months to April. The wage data prompted short-term gilt yields to rise above the level reached during last September’s “mini-Budget” chaos.
Japan’s Nikkei 225 was up 4.5%, breaking above the 33,000 mark and seeing its tenth consecutive weekly gain. It was supported by the Bank of Japan maintaining its ultra-loose monetary policy. As expected the BoJ left its short-term interest rate at -0.1% and made no changes to its yield curve control policy. Meanwhile in China, the People’s Bank of China unexpectedly lowered its short-term lending rate by 10bps on Tuesday and later cut its medium-term lending facility rate by the same amount. There were mounting hopes for additional stimulus from Beijing given the latest weak data releases. Stimulus hopes lifted stocks, with the Shanghai Composite up 1.3%.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
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