Investment Institute
Weekly Market Update

Take Two: US stocks hit fresh highs; ECB confident inflation is under control

  • 27 May 2024 (3 min read)

What do you need to know?

Strong company earnings helped US stocks climb to new highs last week, with the S&P 500 and tech-heavy Nasdaq closing at new records before easing back later in the week on inflation concerns. Several retailers delivered better-than-expected first quarter (Q1) results, suggesting consumer spending remains robust. Year to date, the S&P 500 and Nasdaq indices are respectively ahead 11.1% and 11.8%, while global shares are up 9.5%1 . Meanwhile copper prices rose to a record high of more than $11,000 a ton in expectations that demand could outstrip supply before a sharp fall mid-week. Copper is used in artificial intelligence, electric vehicles and renewable energy, among other sectors.

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Around the world

European Central Bank (ECB) President Christine Lagarde said in an interview that she was “really confident” that Eurozone inflation is under control. The bloc’s annual inflation rate was 2.4% in April, stable compared to March, and down from 7.0% a year ago – the latest update is due this week. Markets currently expect the ECB to cut interest rates in June. Conversely, Federal Reserve officials expressed concern over inflation and that the greater confidence needed to cut rates “will take longer than previously expected”, minutes from the central bank’s latest monetary policy meeting showed. 


Figure in focus: 4/7

UK Prime Minister Rishi Sunak surprised markets by announcing a 4 July general election - not in October/November as anticipated. In addition, annual UK inflation fell less than expected in April, to 2.3% from 3.2% in March – the lowest in nearly three years. Markets had expected inflation to slow to 2.1%, dampening hopes of Bank of England rate cuts early this summer. We now expect the first cut to occur in August. Meanwhile Japan’s annual inflation rate slowed to 2.5% in April from 2.7% in March, while core inflation eased for a second consecutive month, to 2.2% from 2.6%. The data reinforced expectations that the Bank of Japan will wait before raising interest rates further. 


Words of wisdom

GRANOLAS: An acronym for a group of large European heavyweight companies with significant international exposure, that are expected to deliver solid earnings growth in sectors with high barriers to entry. The ‘granolas’ consist of pharmaceutical firms GSK and Roche, semiconductor supplier ASML, food and drink group Nestlé, Novartis and Novo Nordisk – both also pharmaceuticals – cosmetics company L’Oréal, luxury goods firm LVMH, pharmaceutical firms AstraZeneca and Sanofi and software company SAP. The group is viewed as the European equivalent of the US’s so-called ‘Magnificent Seven’ stocks and have helped power the European Stoxx 600 index to record levels this year.


What’s coming up?

On Monday, Germany publishes its closely watched Ifo Business Climate indicator and follows with May’s inflation figures on Wednesday. On Thursday, a spate of Eurozone surveys, including the bloc’s latest Economic, Industrial and Services Sentiment indicators, are issued while the US will publish a second estimate for Q1 GDP growth. On Friday, China releases Purchasing Managers’ Indices for May while France and Canada report their Q1 GDP growth rate and the Eurozone issues its own inflation figures.

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