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London stocks finished the trading week on a positive note on Friday, driven by gains in the mining sector, following the release of data indicating the UK's exit from recession.
The FTSE 100 index rose 0.63% to reach 8,433.76 points, while the FTSE 250 did only slightly worse increasing by 0.56% to settle at 20,645.38 points.
In currency markets, sterling was last up 0.07% on the dollar to trade at $1.253 and increased 0.14% against the euro to trade at €1.163.
On Thursday the Bank of England kept interest rates unchanged at 5.25% as expected but signalled that it was preparing to cut rates back from 16-year highs, and the markets are split over whether the first cut comes in June or August.
We have said for around 6 months now that the Bank would cut during the summer of 2024, and it looks like the market is now finally agreeing with us.
Of course, the one thing that will stop this from happening would be an uptick in inflation, but currently, the data is suggesting that the recent ‘stickiness’ is within the bounds of acceptable variables.
This month's vote was 7-2 with 2 members voting to cut. Last month there was only 1, so it does show that momentum is shifting towards cutting (although still short of what is needed).
On Friday morning the UK got more good news as the ONS released quarterly GDP. The UK’s economy rose 0.6% for the first quarter of 2024 ending the ‘technical’ recession shortly after it began. Incidentally, this was the best reading in two years.
Notably, the services sector led the growth with a 0.7% expansion, while the production sector also saw a robust increase of 0.8%.
However, the construction sector experienced a 0.9% decline in output.
There was broad-based strength across the service industries with retail, public transport and haulage, and health all performing well.
Car manufacturers also had a good quarter. These were only a little offset by another weak quarter for construction.
In Europe
The pan-European STOXX Europe 600 Index ended 3.01% higher on better-than-expected corporate earnings and increased optimism that major central banks would soon start cutting interest rates. Major stock indexes also rose sharply. Germany’s DAX gained 4.28%, France’s CAC 40 Index put on 3.29%, and Italy’s FTSE MIB added 3.06%.
In the US
The S&P 500 Index neared its all-time high and recorded its third consecutive week of gains. The other major indexes also advanced, with value stocks generally outperforming growth shares.
Volume-wise, it was a quiet trading week which appeared to reflect a generally light and unsurprising economic calendar, although some individual stocks moved sharply in reply to first-quarter earnings releases.
Most prominently, perhaps, Walt Disney shares fell 9.5% on Tuesday after the company beat earnings estimates but warned that subscriber growth in its online streaming business was likely to slow. Likewise, a prediction for slowing revenue growth appeared to lead to an 18.6% drop in shares of online retail platform Shopify on Wednesday.
In Asia
Chinese stocks advanced as recovery hopes rose following buoyant holiday spending during the prior week’s Labour Day holiday. The Shanghai Composite Index rose 1.6%, while the blue-chip CSI 300 gained 1.72%. In Hong Kong, the benchmark Hang Seng Index added 2.64%.
China’s exports rose by 1.5% in April from a year earlier, up from a 7.5% decline in March, and broadly in line with consensus estimates. Exports to Southeast Asian nations improved, while European shipments fell. Sales to the U.S. were little changed. Imports climbed a better-than-expected 8.4% in April, reversing March’s 1.9% decline, which some analysts attributed to increased raw materials shipments rather than improved consumer demand.
The week ahead
This week the most important figure we’ll be focusing on is the inflation release on Wednesday. The Fed and market commentators can say their preferred measure is the PCE index, but if inflation and core inflation increase, there is only so long they can hide behind that statement.
Both overall and Core inflation are expected to come in at 0.3% for the month, down from 0.4% last month. This number is still above the average of 0.16% needed to bring inflation to the Fed’s 2% target so even if it has ticked slightly lower, it is way to early to celebrate.
However, a downward move, could suggest a downward trend, and that is what is most important. In short, anything but higher than 0.3% will be met with huge enthusiasm from the Fed and the market.
Having said that, higher would be a problem. Chairman Powell reiterated that the next move in rates will still be down, but an uptick might have them rethinking.
We don’t feel that this is likely though, but it won’t stop it from being an interesting data point.
Other than US inflation, we’ll see UK unemployment which is expected to come in at 4.3%. This is actually higher than during the so-called ‘recession’ at the back end of last year when employment was near all-time lows (one of the reasons we would continue to claim that it wasn’t really a recession at all, but that just confuses people so we won’t dwell on it).
We hope your portfolio makes more moves in the right direction this week. It’s been a cracking 6 months for trackers and long/flat strategies but is the market about to falter once again? If so, short strategies might be back in the game soon.
As always, diversifying is the name of the game and the best way to make sure your portfolio is always on the up.
Have a good week and if you would like more information about TPP’s portfolios please do contact us. www.tppglobal.io
