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Market Update 4

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MARKET UPDATE

 

SUMMARY

 

  • A positive week for asset prices with global bonds and equities making moderate progress.

  • US equity market reached a new all-time high, supported by strong performance from the technology sector… again.

  • Government bond yields have been rangebound, fluctuating due to mixed signals from economic data.

  • European Central Bank (ECB) cut its main deposit rate by 0.25% to 3.75% - first time in almost five years.

  • ECB simultaneously raised their inflation and growth forecasts.

  • US Treasury yields fell early in the week due to a slowdown in the manufacturing sector but reversed mid-week due to stronger data in the second half of the week.

  • Emerging market equities performed well, particularly in Asia.

  • Indian equities performed well despite a weaker-than-expected election result for Prime Minister Narendra Modi.

 

ANALYSIS


It was a positive week for asset prices as global bonds and equities made moderate progress. The global equity market delivered 1.2% whilst global bonds returned 0.4%.

 

The US equity market reached a new all-time high supported by strong performance from the technology sector. It was the AI ‘winners’ that performed best with the world’s most valuable semiconductor firm topping a market capitalisation of US$3 trillion. Whilst the US equity market reached new peaks, smaller cap stocks retreated.

 

Government bond yields have been rangebound over the last few months, fluctuating due to the mixed signals from the economic data. This continued last week as yields fell early on before surging in the second half of the week.

 

In recent weeks, inflation data has set the tone alongside the earnings announcements of a few big tech companies. With the ECB meeting last week, the Fed this week and the Bank of England (BoE) the week after, central banks are taking centre stage in June.


US ECONOMY AND MARKET IMPLICATIONS


Economic data in the US continues to provide mixed signals which led to some toing and froing in bond markets. US Treasury yields fell early in the week as the ISM manufacturing index data showed a slowdown in the manufacturing sector. The data in the second half of the week was notably stronger including the ISM services data which reported that the services sector expanded by the most in nine months. This led to a reversal in yields midweek.


EMERGING MARKETS

Emerging market equities performed well, particularly in Asia. South Korean and Taiwanese equities delivered strong returns: both economies have a presence in the technology industry and their equity markets reflect the strong performance of the sector last week.

 

Indian equities performed well, shrugging off the weaker-than-expected election result for Prime Minister Narendra Modi. The Indian stock market has benefitted from the relative weakness in China, as well as strong economic fundamentals. India’s economy grew 8% in the fiscal year to the end of March, beating estimates. India is supported by a rising middle-class and strong demographics.


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