In typical British fashion the FTSE 100 reached all-time highs this week to little fanfare. After closing at a new all-time high at the start of the week, the large cap index advanced further on the back of strong trading updates from AstraZeneca and Unilever and yet another takeover bid, with Anglo American being targeted by BHP for £31bn.
It has been an interesting week for US equities with large moves in some of the mega cap stocks. Last Friday afternoon Nvidia fell 10% to erase $200bn of value from the company. Meta (Facebook) updated the market this week and, despite positive headline results, the stock sold off heavily due to concerns around the level of capital expenditure for artificial intelligence (AI) and the long-term payback time horizon. There was mixed economic data out of the US this week, with the main attraction being advanced GDP growth for Q1. The figure of 1.6% was below the expected 2.5% and, while it highlighted the US economy is still growing over the first quarter of the year, the lower level of growth caused concern for markets. Both bonds and equities sold off on the news on Thursday, with the yield on the US 10-year treasury reaching 4.7%.
Geopolitics has taken a back seat this week, with limited news coming out of the Middle East. This relative calm led to a retreat in oil, which had recently approached $90 a barrel. Safe-haven currencies, such as the US dollar, retreated this week in a sign of a more risk-on mood in markets due to subdued Middle East news flow.
European PMI data showed the services sector is rebounding and in expansionary mode. European growth is lacklustre, but there are some encouraging signs from the continent. With inflation falling close to target and subdued growth, many investors are expecting the European Central Bank (ECB) to be the next developed market central bank to break cover and cut interest rates.
In a week light on economic data, it was company specific announcements that took centre stage. The potential takeover of Anglo American once again highlights the value foreign buyers are seeing in UK listed companies. The bid by BHP would lead to the creation of the world’s largest copper company. Copper is a critical metal involved in the electrification of the grid and a commodity that is likely to be in short supply over the next decade.
At an index level we have continued to see a broadening out of the market, with some of the technology names now coming under pressure, while other sectors, such as resources of consumer staples, performing better.
As we look out to next week, the main focus will be on US jobs data. The resilience in the US economy has led to the market swiftly changing expectations on interest rate cuts, with only 1-2 cuts now priced in, compared to six cuts priced in at the start of the year. Our investment approach continues to see us focus on shorter-dated bonds which exhibit less interest rate sensitivity, while we hold longer-dated bonds to offer protection against any economic growth shocks.
Andy Triggs, Head of Investments
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