Tuesday saw the release of the eagerly awaited February consumer price index (CPI), which rose 0.4% month-on-month, matching expectations. Even a larger-than-expected uptick in the core index didn’t really prompt a sell-off, however markets were more moved by the producer price index (PPI) released later in the week. The PPI increased 0.6% month-on-month for February, its biggest increase in six months and coming in ahead of expectations. While inflation has greatly come down from its peaks, the last leg in getting back to the Federal Reserve’s target is proving harder to achieve and the latest data prompted markets to dial back rate expectations. While the central bank is not expected to move in its March meeting this week, investors will be paying close attention to see whether or not June’s rate cut is still on the cards.
The S&P 500 dropped 0.1% for the week, seeing its first back-to-back weekly loss since October. Weakness in Nvidia and other chipmakers, taking a breather from their stellar run so far this year, weighed on technology stocks, as well as the prospect of interest rates remaining higher for longer. Faring better was the energy sector, which managed to outperform given higher oil prices. The tech-heavy Nasdaq index fell 0.7% while the concentrated Dow Jones ended marginally below the flatline, having touched a record high on Wednesday. Bond yields climbed on the inflation data, with the 10-year Treasury note up to end the week at 4.31%.
In contrast to the US, European markets were higher for the week to extend their winning streak. The pan-European STOXX 600 was up 0.3%, notching its eighth consecutive gain. Regional indices’ gains were more impressive, with France’s CAC 40 up 1.7%, achieving new highs once more and Italy’s FTSE MIB rising 1.6%. Looking at bonds, on Wednesday the spread between the 10-year Italian and German government bonds narrowed to its lowest level since November 2021 amid improving prospects for Italy’s economy whilst Germany’s has stalled. The UK FTSE 100 added 0.9% with the economy showing signs of recovery from its mild recession, expanding 0.2% in January.
Chinese markets experienced an uptick, as recent supportive measures from the government have lifted confidence around the economy. Inflation data released during the week was mixed, with the CPI adding 0.7% year-on-year in February, its first time moving out of deflationary territory since August, supported by consumption around the Lunar New Year. Meanwhile, factory gate prices dropped by a larger-than-expected 2.7%. The troubled property sector showed little sign of improvement, with new home prices falling for an eighth consecutive month. Furthermore, Moody’s downgraded developer China Vanke to junk status while Country Garden missed a coupon payment on a yuan bond for the first time.
Japan’s Nikkei 225 slipped further away from its recent record highs, dropping 2.5% for the week, its largest fall since December. The spring shunto wage negotiations have seen the biggest rise in average raises for labour unions since the early 1990s. This raised hopes that wage growth could push up inflation and spur the Bank of Japan to exit its negative rate policy. Eyes will be on the central bank, with a hike potentially announced at its meeting this week or in April. The yen weakened against the US dollar over the week.
Both MSCI’s indices for Latin American equities and currencies ended the week with gains, even after the US dollar picked up following the hotter-than-expected US inflation data. On Thursday, Argentina’s Senate voted to reject President Milei’s emergency decree to deregulate the economy, in a blow to his reform agenda. Earlier in the week Argentina’s central bank cut its benchmark interest rate to 80% from 100% as it tries to reduce its liabilities. For the week the Merval index added 6.7%. Another gainer was Peru's index which rose 2.7%. In a historic move, Peru’s Congress voted in favour of returning to a bicameral parliament, establishing a Chamber of Deputies and Senate.
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.