The PCE index held at 2.7% year-on-year in April, in line with economists’ expectations, with a Fed rate cut in September roughly even odds. Following the inflation data, the Dow Jones Industrial Average rose 1.5% in its best session of the year. Despite this, its wasn’t enough for the index to avoid a weekly loss in a holiday shortened week. Indeed, the S&P 500 and Nasdaq also saw small weekly declines, snapping five-week winning streaks, with growth stocks underperforming value. There was particular weakness in Salesforce following a rare earnings miss from the cloud software provider.
Stocks had been under pressure by rising US Treasury yields earlier in the week. This came after weak demand for auctions of five- and seven-year Treasury notes. The yield on the 10-year Treasury note had been up above 4.6%, a four-week high, however it retreated following the inflation data and ended the week at 4.5%.
Similar to the US, European investors spent much of the week on edge ahead of inflation prints, with Friday’s reading of headline eurozone inflation rising 2.6% year-on-year in May. This was stronger than expected, however this will unlikely prevent the European Central Bank from cutting interest rates at its next meeting in June but will cause doubts about a subsequent cut in July. In response the 10-year German bund yield hit its highest level in over six months, rising to 2.7%. For the week the pan-European STOXX 600 lost 0.5%, its second consecutive week in the red, although some regional indices saw small gains.
Japan’s Nikkei 225 lost 0.4% for the week while the broader Topix index managed to gain 1.1%, again with the focus being on when the first rate cut from the US Fed is expected. In addition, there was speculation on the path of action by the Bank of Japan. Tokyo’s core consumer price index rose 1.9% year-on-year in May, in line with expectations, although with it being slightly below the central bank’s target it may lessen the case for imminent rate hikes. The yen once again held near 34-year lows, with data revealing that Japanese authorities spent $62bn in the foreign exchange markets from 26 April to 29 May.
In China the Shanghai Composite ended slightly below the flatline while Hong Kong’s Hang Seng saw a more notable drop of 2.8%. This came after unexpectedly weak purchasing managers’ index (PMI) data, whereby the National Bureau of Statistics’ manufacturing PMI dropped to 49.5 in May, re-entering contractionary territory. Latin American equity indices were mostly lower, with the exception of Argentina’s Merval, which spiked higher. Mexico’s BMV index was slightly lower ahead of Sunday’s presidential vote.
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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.