Global stock markets extended their May gains this week, with a welcome slowdown in inflation in the United States laying the groundwork for interest rate cuts.
Investor sentiment has also been supported by positive corporate earnings statements. Any signs that the US and global economies may be able to achieve a soft landing – where inflation is brought under control without driving unemployment significantly higher or seriously damaging private sector performance – have been seized upon by markets in recent months and have underpinned this year’s equities rallies. However, as we saw in April, optimism can quickly fade if inflation does not fall as quickly as expected.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.9% up for the week so far, with the S&P 500 gaining 1.4%. The Dow broke through the 40,000 point barrier for the first time on Thursday in the wake of Wednesday’s fall in the Consumer Price Index. Share prices in the US were also bolstered by slightly weaker economic data, with retail sales and industrial production both flatlining in April. As a result, the market is now expecting the Federal Reserve to make its first interest rate cut in September rather than at the end of the year.
UK
In the UK, the FTSE 100 closed on Thursday 0.1% up for the week as the index consolidated its recent strong gains and reached another all-time high. The Bank of England remains on course to cut the base rate over summer, according to comments from its chief economist, as unemployment in Britain continues to rise. Private sector output reportedly increased in April as the UK economy recovered from last year’s short-lived recession, although latest figures showed a 20% fall in housebuilding in the first three months of the year.
Europe
In Frankfurt, the DAX index ended Thursday’s session down 0.2% for the week, while France’s CAC 40 fell 0.4%, with both indexes giving up some of the impressive gains made at the start of the month. The European Central Bank is also on the verge of cutting rates, with a report from the European Union forecasting further falls in eurozone inflation in 2024. However, the ECB’s latest Financial Stability Review warned of the potential geopolitical impact of the large number of national elections taking place this year. The review also highlighted the risks posed by ongoing weakness in Europe’s commercial property sector.
Asia
In Asia, the Hang Seng index in Hong Kong gained 2.2% as its recent rally continued. Concerns about the stability of the Chinese real estate sector have eased in recent weeks, while investors remain hopeful the government will inject further stimulus into the country’s economy. However, latest figures showed a fall in bank lending, while recent restrictions on trade with the US could hamper China’s recent economic recovery. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 1.8% following the fall in the US inflation rate, with technology stocks leading the gains and the yen making up some lost ground against the dollar. Inflation in Japan, however, rose to an annual rate of 2.6% in March while the economy slowed more quickly than expected in the first three months of 2024.
May 10 | May 16 | Change (%) | |
|---|---|---|---|
FTSE 100 | 8433.8 | 8438.7 | 0.1 |
FTSE 250 | 20645.4 | 20822.8 | 0.9 |
S&P 500 | 5222.7 | 5297.1 | 1.4 |
Dow Jones | 39512.8 | 39869.4 | 0.9 |
DAX | 18772.9 | 18738.8 | -0.2 |
CAC 40 | 8219.1 | 8188.5 | -0.4 |
ACWI | 782.1 | 794.1 | 1.5 |
Hong Kong Hang Seng | 18963.7 | 19376.5 | 2.2 |
Nikkei 225 | 38229.1 | 38920.3 | 1.8 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 16 May 2024.
