Global Markets Weekly Wrap KW 20 : US Stocks Hit Records, Inflation Eases

Global Markets Weekly Wrap KW 20 : US Stocks Hit Records, Inflation Eases 

Global Markets Weekly Update

United States

Large-Cap Indexes Reach New Highs

This week, major US stock indexes, including the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite, hit record highs The Dow surpassed the 40,000 mark for the first time Easing concerns about inflation and interest rates contributed to the outperformance of growth stocks, likely due to the lower implied discount on future earnings

Inflation Moderation Boosts Sentiment

Investor sentiment was bolstered by the Labor Department's April consumer price index (CPI) report, which matched or was slightly below expectations in contrast to previous months' hotter-than-expected figures Headline inflation rose 0.3 percent in April, slightly below expectations, with core inflation (excluding food and energy) rising as expected Inflation was primarily driven by service prices, notably transportation costs, which saw a significant increase

Retail Sales Disappoint but Offer Positive Stock Signals

April's retail sales data, reported as flat against an expected 0.4 percent increase, seemed to reassure investors The Commerce Department also revised March sales lower The data indicated a reduction in discretionary spending, with online sales dropping 1.2 percent and restaurant sales declining slightly when adjusted for inflation

Falling Treasury Yields

Lower-than-expected inflation and growth figures led to a decline in the yield on the 10-year US Treasury note, reaching a one-month low This trend influenced the tax-exempt municipal bond market, which saw strong demand for new issuances despite secondary market activity being limited by midweek inflation data uncertainty

Investment-Grade and High-Yield Bond Markets

In the investment-grade bond market, spreads initially widened but tightened later in the week, with issuance concentrated on the shorter end High-yield bonds benefited from favorable rate movements, and trading volumes increased following positive inflation data The leveraged loan market remained stable as it processed the inflation and retail sales reports

Index Performance

Dow Jones Industrial Average: 40,003.59 (+490.75, +6.14 percent YTD)

S&P 500: 5,303.27 (+80.59, +11.18 percent YTD)

Nasdaq Composite: 16,685.97 (+345.10, +11.16 percent YTD)

S&P MidCap 400: 3,016.25 (+22.29, +8.44 percent YTD)

Russell 2000: 2,095.72 (+35.94, +3.39 percent YTD)

Europe

Mixed Performance Amid Cautious ECB Comments

The STOXX Europe 600 Index rose 0.42 percent but did not maintain its midweek record high ECB officials' cautious statements dampened optimism about monetary policy easing Germany's DAX fell 0.36 percent, France's CAC 40 dropped 0.63 percent, Italy's FTSE MIB rose 2.14 percent, and the UK's FTSE 100 saw a slight decline

UK Labor Market Insights

UK pay growth remained strong, with a 6 percent annual rate excluding bonuses, slightly above expectations Despite this, the labor market showed signs of loosening, with rising unemployment and declining job vacancies, hinting at a potential interest rate cut in June

ECB Policy Outlook

ECB members suggested a likely rate cut in June, though the future path remains uncertain Francois Villeroy de Galhau, Madis Muller, and Martins Kazaks indicated caution, while Isabel Schnabel and Pierre Wunsch provided mixed signals about further rate cuts

Industrial Production in the Eurozone

Eurozone industrial production rose for the second consecutive month in March, driven by a significant but volatile increase in Ireland's output

Japan

Equities Rise Despite Economic Weakness

Japanese stocks advanced, with the Nikkei 225 up 1.5 percent and the TOPIX up 0.6 percent, despite weak economic indicators and a stable yen influenced by anticipated US rate cuts and BoJ's tentative hawkish stance

Economic Contraction and Currency Stability

Japan's first-quarter GDP showed a 2.0 percent annualized contraction due to various factors, including the January earthquake and suspended auto production The yen remained range-bound amid expectations of reduced US-Japan interest rate differentials

BoJ Adjustments Affect Bond Yields

The BoJ reduced bond purchases, causing a slight rise in the 10-year JGB yield to 0.94 percent, reflecting hawkish monetary policy signals

China

Property Sector Rescue Package

Chinese equities were stable after the central government announced a major rescue package for the struggling property sector The Shanghai Composite was flat, the CSI 300 increased by 0.32 percent, and Hong Kong's Hang Seng Index rose 3.11 percent

Policy Measures to Stimulate Housing Market

The People's Bank of China (PBOC) lowered down payment requirements and removed mortgage rate floors to boost demand Additionally, the PBOC provided RMB 300 billion in low-cost funds to support the purchase of unsold homes

Economic Data Highlights

Despite the support package, April's new home prices and real estate investment continued to decline Consumer inflation rose slightly, while producer prices fell Industrial production exceeded expectations, but fixed-asset investment and retail sales were below forecasts, indicating weak domestic demand

Other Key Markets

Hungary Potential for Further Rate Cuts

Hungary's April inflation rate was 3.7 percent, with core inflation momentum stabilizing T. Rowe Price analyst Ivan Morozov suggests broader inflation trends may allow for continued central bank rate cuts

Argentina Central Bank Rate Cut

Argentina reported April inflation at 8.8 percent month-over-month and 289.4 percent year-over-year In response, the central bank cut its key interest rate from 50 percent to 40 percent, although real rates remain deeply negative President Javier Milei indicated the possibility of lifting foreign exchange controls soon

Market Movers

Meme Stocks Resurgence

Retail investors revived interest in volatile stocks, with significant trading volumes in low-priced shares

Record Highs in Major Indexes

Encouraging CPI data drove new highs in the S&P 500, Nasdaq, and Dow

Hong Kong Equities Gain

The Hang Seng index saw significant gains due to China's property market support measures

Copper Prices Surge

Copper futures rose due to strong demand expectations and supply constraints

Macro Insights

Easing US Inflation

April saw the first decline in inflation pressures this year, with core CPI slightly under expectations

Japanese Bond Yields Rise

BoJ policy shifts led to higher Japanese bond yields, with revised forecasts for future rates

Trade and Tariff Updates

The US imposed tariffs on Chinese products, potentially impacting China's GDP growth

Micro Insights

Retail Sector Strength

A leading US retailer hit new highs due to robust first-quarter earnings and optimistic forecasts

China's Housing Stimulus

A broad stimulus package boosted investor confidence in China's real estate sector

Upcoming Events

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MBA Mortgage Applications, FOMC Meeting Minutes, S&P Global PMI, U. of Mich Expectations, Durable Goods Orders

Global

Eurozone PMI, Eurozone Consumer Confidence, UK CPI, Japan CPI, Germany GDP, Mexico GDP, Mexico Trade Balance