This week, as expected, the European Central Bank (ECB) cut interest rates by 25bps (0.25%), bringing interest rates down to 4.25%. This was the ECB’s first rate cut in five years. While the UK and US are still to cut rates, the ECB joins Sweden, Switzerland and Canada in reducing rates.
As ever, the commentary from ECB president, Christine Lagarde, was as important as the interest rate decision, allowing investors to gauge the ECB’s position on future cuts. Lagarde surprisingly upgraded both the inflation and growth outlook for Europe, leading some to question why they have cut rates. The market is pricing in another rate cut in 2024 and will be studying data closely.
This week the battle for 10 Downing Street continued as Prime Minister Sunak and Labour leader Sir Kier Starmer went head-to-head in a TV debate. They battled on several topics such as tax, the NHS, and immigration. The TV debates are coming thick and fast with a seven-way political debate taking place this evening.
Last week we covered the South African presidential race and the elections continued around the world. In Mexico, where they are currently experiencing a heatwave, the first female President, Claudia Sheinbaum, was elected after a landslide victory. The former climate scientist who is currently serving as the mayor of Mexico City, has promised to control the cartel violence, improve health and education and increase the living wage which is “a right not a privilege”.
Heading over to India, Prime Minister Narendra Modi has been in power for the last ten years and is set for a third term in power, however this term will be different. A coalition of Modi’s party (BJP) and the opposition INDIA will be formed with Mr Modi as the figurehead for the national democratic alliance. A world record was set with more than 640 million people voting in the election in the hope the new government would tackle elevated unemployment levels. The news that Modi would be unlikely to claim a majority led to the Indian equity index falling 6%.
This week the main US equity index hit a record high for the 25th time this year, powered by the technology stocks and most notably Nvidia. On Wednesday, Nvidia became the second largest company in the world by market cap, reaching $3 trillion and overtaking Apple. The company stock has risen 145% in 2024, adding over $1.8 trillion in value off the back of strong earnings and expectations of very strong demand going forward. A spate of weaker US economic data has also led to markets pricing in an additional rate cut this year and that has boosted the equity market.
US Non-farm payrolls are released on the first Friday of the month and surprised today as for the month of May 272,000 jobs were created, exceeding the market forecast of 185,000. The previous month’s figure was revised down to 165,000, however this now seems an anomaly for the year highlighting the continued strength of the labour market.
Next week looks like a busy week with UK GDP and US inflation being reported. The US Fed will be hoping that inflation continues to move closer to their 2% target, which will allow them to cut interest rates before the presidential election. Here in the UK the economy has been proving stronger than expected and hopefully the data will show this is continuing. We currently see value in UK equities, with many businesses trading at distressed prices, however their underlying company performance is anything but distressed.
Nathan Amaning, Investment Analyst
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