Stocks had managed to advance following dovish comments from a number of Federal Reserve policymakers, with most mindful that there is less need to raise rates given the rise in yields. US inflation came in slightly hotter-than-expected, with the consumer price index rising 3.7% year-on-year, although core inflation matched expectations, up 4.1%, its slowest pace in two years. This prompted a sell-off in Treasury bonds, which was not helped by a weak auction of long-term bonds, putting some pressure on stocks. However, for the week, Treasury yields were overall lower with the 10-year note ending at 4.62%.
For the week the S&P 500 gained 0.5% in its second consecutive gain, the Dow Jones added 0.8% to snap a two-week losing streak, however the Nasdaq logged a slight decline of 0.2%. Amongst sectors on the S&P 500, energy was one of the best gainers as oil prices rose. On Friday Brent crude futures saw their biggest daily gain since April, up 5.7%, and ended the week at $90.97 a barrel. Utilities also notched strong gains given the risk-off sentiment around the war in the Middle East. Friday saw banks kick off earnings season, with results generally positive, supported by higher interest rates. The S&P 500 Banks index had touched a three-week high, before paring back gains.
The pan-European STOXX 600 added almost 1% for the week to snap a three-week losing streak. Stocks found support from the dovish Fed comments as well as hopes that Beijing would action more stimulus for the Chinese economy. However regional performance was still mixed, with UK and Italian indices up while German and French indices retreated. The outlook for growth in Germany this year grew gloomier, with the German government and International Monetary Fund lowering forecasts, expecting GDP to shrink by 0.4% and 0.5% respectively. There was yet another initial public offering put on hold owing to cautious investor sentiment, in a further blow to the European IPO market.
Japan’s Nikkei 225 saw very strong weekly performance, up 4.3%, helped by yen weakness amid a strengthening dollar on geopolitical tensions. The yen continued to linger close to the key 150 per dollar level which could spark intervention. In China, the Shanghai Composite logged a loss after returning from its Golden Week holiday, while in Hong Kong the Hang Seng added 2.4 %. The latest inflation data from China remained soft, with producer prices remaining in deflationary territory. Trade data was also weak, once again raising concerns about the health of domestic demand and the economy. Stocks did find support in reports that Beijing was readying more stimulus measures.
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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