Wall Street rallied on Friday after the Federal Reserve’s preferred measure of inflation, the core personal consumption expenditure price index, eased to 4.6% on an annualised basis, lower than expectations. Earlier in the week, Fed chair Jerome Powell said that more action may be needed to curb inflation, however the PCE figure raised hopes that the central bank may soon be nearing its peak. Other economic data for the week generally proved resilient, helping ease recession fears.
For the week the S&P 500 added 2.4% and ended the first half of the year up 16%. The Nasdaq index gained 2.42% for the week, helped by Apple which once again surpassed the $3tn market cap level on Friday. The tech-heavy index climbed 32% in the first half of the year, its best performance since 1983, benefiting from the buzz around artificial intelligence. Meanwhile the narrowly focused Dow Jones rose 2% for the week but only 3.8% year-to-date. The better-than-expected economic data sent Treasury yields higher. The yield on the 10-year Treasury note ended up at 3.81% and climbed during the second quarter on easing recession concerns.
European indices were also higher for the week, helped by cooling inflation data. The pan-European STOXX 600 added 1.9% and closed the first half of 2023 nearly 9% higher. Eurozone headline CPI cooled to 5.5% in June, and while this remains above the European Central Bank’s target the lower-than-expected figure prompted markets to raise bets of a quarter-point rate hike at the ECB’s July meeting, rather than a half-point. Ahead of the figure, ECB president Christine Lagarde had cautioned that the inflation fight was not yet over.
Japan’s Nikkei 225 was once again higher, adding 1.2% for the week. The index has been one of the standout performers of the year so far, although the yen’s weakness has moderated US dollar returns. The yen briefly broke the 145-barrier to drop near a seven-month low, and while monetary authorities stated they were closely monitoring the currency moves there were no signs of intervention. Chinese markets only saw modest returns with the Shanghai Composite up 0.1% for the week. Premier Li Qiang said that China was on track to reach its annual growth target and that second quarter GDP would be higher than that of the first. China’s official manufacturing PMI remained in contraction while the non-manufacturing index eased more than expected, prompting hopes that Beijing will step in with stimulus measures to prop up the economy.
Latin American stocks generally gained for the week and rose 15% for the first half of the year, outperforming other emerging markets. Investors are growing more hopeful that central banks in the region will soon start cutting interest rates. Minutes from the Brazilian central bank’s June meeting suggested that policymakers may be in favour of a rate cut at the next meeting in August provided that the disinflationary process continues.
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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