US trading got off to a positive start to the week, helped by a strong retail sales report from the Commerce Department as well as financial stocks gaining on their quarterly earnings reports. However, there was growing caution over Iran’s missile and drone strike on Israel over the weekend and whether it would prompt retaliatory action. Indeed, on Friday Israel launched a retaliatory attack, with the Cboe Volatility Index hitting its highest level since late October. As well as the worsening geopolitical situation, equities continued to be under pressure by the prospect of rate cuts from the Federal Reserve coming later than initially hoped.
For the week, the S&P 500 declined 3.1% and has been down for six consecutive sessions, its longest losing streak since October 2022. Tech mega-caps weighed on indices, lagging on the possibility of higher rates for longer. The Nasdaq Composite was also on a six-session losing streak and fell 5.5%, its worst week since November 2022. The Dow Jones managed to eke out a marginal gain. The yield on the 10-year Treasury bond ended the week slightly higher at 4.62%. Oil prices had ticked higher amid caution on potential supply disruptions given the tensions in the Middle East, however they actually lost ground for the week. Similarly, gold had been up at record highs but ultimately ended lower, while the dollar index saw a slight weekly rise.
European markets also dipped on the Middle East conflict. The pan-European STOXX 600 was down 1.2%, its worst week since mid-January. The technology sector was the worst performer, hurt by losses in ASML which was down over 10% for the week after the chip equipment maker delivered lower-than-expected first quarter new bookings. Individual regional performance was mixed with Germany’s DAX amongst decliners while Italy’s FTSE MIB logged a 0.5% gain. Comments from a number of European Central Bank policymakers indicated that June was the likely date for the first rate cut, but they would continue to monitor incoming data.
In Japan, the Nikkei 225 sank 6.2% on the already mentioned factors. This also came as the yen strengthened, helped by its perceived safe haven status, however gains were modest overall, and it still remains close to 34-year lows. The yen continues to be closely watched for any potential intervention by authorities. Indeed, finance ministers from Japan, South Korea and the US met to discuss foreign exchange market conditions given the depreciation of the yen and won.
The Hang Seng was also weaker, down almost 3% for the week, however on the mainland Chinese indices bucked the trend, with the Shanghai Composite up 1.5%. Investors welcomed the better-than-expected gross domestic product figures, with the economy expanding 5.3% in the first quarter. There still however remains weakness, with new home prices dropping for a ninth consecutive month.
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.
This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.