After a speed bump in April, US equities have continued their advance higher this week, with a range of indices hitting fresh all-time highs. The catalyst this week was slightly softer US inflation data which could allow the US Fed to begin rate cuts in the near future.
For much of 2024 US inflation data has been higher than expected, so there was relief when headline and core inflation came in as expected, at 3.4% and 3.6% respectively. Both figures were lower than the previous month and give support to inflation continuing to trend lower. Encouragingly, month-on-month inflation was marginally lower than anticipated, at 0.3%. Mr Powell also spoke early this week stating the central bank “will need to be patient” confirming they will stand firm until they see additional data prints before cutting rates.
Retail sales in the US for the month of April (month-on-month) were flat. Despite a 3.1% rise in gasoline station sales, sectors such as motor vehicles, non-store retailers and health & personal care stores dragged down the data as consumer spending appears to be cooling. There appears to be early evidence of a slowing US consumer, and we noted with interest that recent results from Apple and Starbucks showed negative sales growth; phones and coffee seem a good barometer for the health of the modern-day consumer! The US Fed will be taking note of the recent data points and it may provide them with more confidence to cut interest rates in the near term to provide support to both businesses and consumers.
French Prime Minister, Mr Macron, on Monday won a record Є15bn of foreign investment pledged by global CEOs in sectors ranging from artificial intelligence (AI) to pharmaceuticals. He hosted the country’s annual “Choose France” summit, which aims to showcase France’s investment advantages and attract overseas businesses to operate in France. The investments cover a span of 56 different projects and potentially lead to the creation of 10,000 extra jobs. Microsoft alone pledged to invest Є4bn into a data centre that will enhance their AI infrastructure and cloud capabilities.
Germany’s inflation for the month of April came in unchanged from the previous month at 2.2%. This was in line with investor expectations and positively not far off the 2% target. Looking forward it is expected that headline inflation in Germany could rebound as high as 3% next month as geopolitics in the middle east continue to present issues to supply chains. A possible rate cut in the month of June by the European Central Bank (ECB) is still very much on the cards, although the path after this is less clear.
After many months in the doldrums, Chinese equities have been the bright spot in recent weeks as Chinese authorities have announced a range of measures to try to kickstart the economy and depressed housing market. Further measures were announced on Friday with an easing of mortgage rules alongside local governments buying apartments. The mainland China equity index is up around 30% since the lows in January, as investors have been lured in by depressed valuations and what appears supportive policy measures for the equity market.
UK equities took a breather this week after recent strong performance, however, with inflation data published next week there is potential for further moves.
At a portfolio level infrastructure, driven by the utilities sector, has been a recent bright spot. The initial explosion of artificial intelligence (AI) excitement hit the chip makers, and there now seems to be a narrative forming around the huge power needs required for AI, which is supporting utilities. As always our diversified approach allows us to be exposed to a range of sectors and themes in portfolios.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.