Markets in a minute 20th May 2024

THE PRICE IS RIGHT!

Last week, falling inflation and softer retail sales in the US boosted expectations of rate cuts from the Fed, which pushed bond yields lower. This backdrop supported a rally in the S&P 500 to a new historical high.

This week, focus is set to be on numerous speeches from members of the Fed and the Bank's meeting minutes while in Europe, May business and consumer confidence could be noteworthy. Meanwhile, global PMIs for May are set to give a broad picture of business conditions and prospects.

Last week, the S&P 500 rose to a new historical high, supported by a deceleration in inflation and lacklustre retail sales, both of which supported the case for rate cuts in the US. The S&P 500 rose as much as 1.9% during the week.

The Euro Stoxx 600 was up as much as 0.9%, but gave back some of those gains towards the end of the week amid softer activity data from China, a key export market for the Eurozone.

In the US, consumer price inflation decelerated in April, with headline prices up by 3.4% y/y from 3.5% in March. Core prices, which are usually a better measure of price pressures as they exclude volatile items like food and energy, also fell to 3.6%, the lowest since April 2021. Meanwhile, the control group for retail sales, which is used to calculate GDP, fell by 0.3% m/m in April. This was below market expectations and indicated slowing growth in Q2.

Data from the Eurozone continued to suggest an economic recovery, with March industrial production rebounding from a fall in February. Investors' assessment of current and future conditions in Germany also improved amid positive views on domestic conditions, with the ZEW economic sentiment index rising to a two-year high in May.

Prior to the CPI release, Fed Chair Jay Powell suggested that rates could remain 'higher for longer' but that further increases in the Fed's policy rate were not expected. Meanwhile, ECB officials continued to guide for a rate cut in June. The European Commission revised down its 2024 inflation forecast to 2.5% and expects a further fall to the ECB's 2% target in 2025.

Central bank speakers and slowing inflation and activity in the US led to increased expectations of rate cuts in 2024. Bond yields fell (bond yields fall as bond prices rise) for both 10-year US Treasuries and equivalent German bunds to 4.35% and 2.43%, respectively.

This week, focus is set to be on numerous speeches from members of the Fed and the Bank's meeting minutes while in Europe, May business and consumer confidence could be noteworthy. Meanwhile, global PMIs for May are set to give a broad picture of business conditions and prospects.

Mon 20th

Germany - IFO business survey, retail sales

Wed 22nd

US - Fed meeting minutes

Thu 23rd

Global PMIs

US - Initial jobless claims

Eurozone - Consumer confidence

Fri 24th

US - Durable goods

This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.