Markets in a Minute

A FRAGILE PEACE

It was a two-speed equity market last week as the S&P 500 and NASDAQ 100 both logged their best month since 2020 while European stocks lagged as inflation and growth concerns played out.

Central banks left rates on hold as expected but sounded concerns over inflation and economic growth. Over the long weekend, tensions in the Middle East rose as the US and Iran traded fire amidst signs that the fragile ceasefire may be disintegrating.

The situation in the Middle East will be front and foremost this week as oil rose to over $115 per barrel and European Equity markets drew down on Tuesday morning. Later in the week we get US jobs data and European inflation numbers while the UK goes to the polls in local elections.

Earnings were the driving force for equity markets as five of the 'Magnificent 7' group of companies reported bumper profits last week. Share prices did diverge though as investors appear to be rewarding monetisation of AI and punishing spending on AI in equal measures. All of the major central banks left rates on hold as expected last week. The US Federal Reserve revealed 4 dissenting voices with three of those making arguments for a more Hawkish stance citing inflationary fears. Outgoing chair Jerome Powell announced that he would stay on as governor until all investigations against the Fed had been dropped. The ECB also left rates on hold but acknowledged that risks to the economy had intensified and noted that there had been an 'in-depth' discussion about rate hikes as German inflation accelerated heading into May. Tariffs were back on the agenda as the US administration announced a 25% levy on European car manufacturers citing displeasure with the EU not holding up their side of the trade agreement. Finally, tensions in the Middle East rose once more with the US and Iran reportedly exchanging fire as the impasse in the Strait of Hormuz continues and the conflict enters its third month.

The S&P 500 finished last week up 0.8% whilst the STOXX 600 in Europe added 0.1% in the week. Solid earnings results being the main catalyst.

Bond yields rose last week, (bond yields fall as bond prices rise) on both sides of the Atlantic. The 10-year US Treasury rose 7bps to settle at 4.38% as investors focused on the Hawkish tone of the Federal Reserve and the 3 dissenting views. The German bund equivalent followed suit, rising by 4bps to 2.04%.

• Tue 5th - US ISM Services data, Job Openings & Labour Turnover (JOLTS)
• Wed 6th - Global PMI data
• Fri 8th - US employment data