Week ending 10th May 2024.

As you can see from the accompanying table markets broadly closed the week higher.

The FTSE 100 soared closing the week up 2.68%. The Bank of England held its ground on Thursday, opting to hold interest rates at 5.25%, a decision that came as no surprise to market participants. Governor Andrew Bailey struck a tone of cautious optimism, citing encouraging developments in inflation and predicting it to fall to the 2% target in the coming months. His remarks were well-received by the markets, signalling a potential shift in the hawkish sentiment. Despite holding rates steady, the committee’s stance hinted at a more dovish tone, with 7 members voting to maintain rates and 2 advocating for a cut.

Looking ahead to the next meeting in June, policymakers will closely analyse labour market reports and inflation figures to gauge the economy’s trajectory. Governor Bailey emphasised that while a rate change in June is not predetermined, it remains a possibility depending on economic indicators.

In a positive turn of events, preliminary Q1 GDP data revealed a resilient UK economy, dispelling concerns of a recession. The economy grew by 0.6%, marking its fastest rate of growth in two years. Key drivers of growth included services sectors such as retail, public transport, haulage, and health. This encouraging data bodes well for the UK’s economic outlook, particularly amidst the looming spectre of an upcoming election, where economic policies are expected to take centre stage.

In the global arena, the S&P 500 extended its May gains bolstered by a better-than-expected earnings season. Among the 459 firms listed in the S&P 500 that have disclosed their earnings this quarter, they have on average exceeded profit forecasts by 8.4%. Moreover, approximately 79% of these companies have surpassed profit projections, marking an increase from the 76% recorded in the previous quarter.

Markets reacted positively to sign of a steadily cooling US labour market, adding to the case for policymakers to consider a rate cut soon. Reports demonstrated a surprise uptick in weekly jobless claims, reaching 231,000 on the week ending May 4th—the highest since August. There were also signs of weaker consumer sentiment. On Friday, the University of Michigan’s preliminary consumer sentiment index for May fell unexpectedly to 67.4, marking its lowest level in six months. Next week all eyes will be on the April CPI which is expected to tick down from the prior month’s 3.5%.

Across Asia, stocks rallied amid renewed hopes for global rate cuts and strong economic indicators such as better-than-expected Chinese export/import data– the Hang Seng closed the week up 2.64%.

Coming up next week, UK unemployment rate and average earnings. US PPI and CPI will be closely watched by Fed officials and investors. US retail sales and industrial production data is also due. On Friday we can expect Chinese industrial production, retail sales and unemployment data.

Kate Mimnagh, Portfolio Economist 

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