In addition, the producer price index rose by a slower pace than expected. Friday’s release of the University of Michigan’s consumer sentiment indicator showed that respondents’ long-run inflation expectations rose to a 12-year high. While this is cause for concern, markets are still pricing in rate cuts from the Federal Reserve by the end of the year.
US stocks were mixed for the week. The Nasdaq rose 0.4% for the week, with tech stocks some of the best performers given their rate sensitivity, as well as a boost in Alphabet after unveiling its artificial intelligence plans. The S&P 500 however saw its second consecutive weekly loss, with US regional banking worries re-emerging once more to keep financials on edge. The uncertainty over the US debt ceiling also cast a shadow over economic growth prospects and dampened appetite. Meanwhile Treasury yields gained slightly, with the yield on the 10-year note ending at 3.461%.
Without any major catalysts, the pan-European STOXX 600 ended the week little changed. Stocks had slid mid-week as investors digested the inflation data out of the US, but got a boost on Friday, with the luxury sector faring well after an upbeat earnings report from Richemont. In a holiday shortened week the UK’s FTSE 100 declined 0.3%, driven by a decline on Thursday. The Bank of England raised interest rates by 25 basis points to 4.5%, its twelfth consecutive hike but left the door open for further hikes, revealing that inflation would drop slower than expected.
China’s export growth eased in April although not by as much as expected, while imports declined 7.9% year-on-year, raising concerns about the robustness of China’s economic growth. The fragility of the recovery, particularly domestic demand, was reinforced following the latest inflation data, where China’s consumer prices climbed by their slowest pace in over two years while factory gate prices continued to decline. Given the underwhelming data and general unease in markets, Chinese equities were lower for the week. In contrast Japan’s Nikkei 225 was up 0.8% for the week, helped by strong corporate earnings, marking its fifth consecutive weekly gain.
Latin American currencies had gained on Wednesday following the US inflation data which raised expectations of a Fed pause, with MSCI’s index for Latam currencies touching an eight-year high. However weaker demand from China and the prospect of a US recession given the debt ceiling standoff weighed. For the week Latam stocks were up 2.7%. Chile’s central bank held interest rates steady at 11.25% for a fourth consecutive meeting, and Peru’s central bank also held rates unchanged at 7.75% but cautioned that it was too early to claim victory over inflation. The inflation picture in Brazil continued to improve, raising the prospect for a rate cut later in the year. For the week, the Bovespa index was up over 3%.
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