Weekly house view

The week in review

May ended on a whimper for US equities, as the Fed continued to seed doubts about its rate cut intentions. Inflation numbers were as expected, but weak US Treasury auctions also dampened sentiment and impacted markets in Europe. Higher-than-expected May inflation also soured the mood in Europe despite the probability of an ECB rate cut this week. Yet risk markets were mostly up in May overall, with the S&P500ⁱ gaining almost 5% and the Stoxx Europe 600ⁱⁱ 3.5% (in local currency terms). There was some noticeable divergence in government bonds - US Treasuries rallied as US rate cut expectations receded, while German Bunds sold off, and the month ended with France’s sovereign ratings downgrade by S&P. Ten-year yields in the usually placid Japanese bond market rose stiffly as the market braced for possible Bank of Japan rate hikes to stabilise the yen, although dollar strength against the yen and other currencies wanned as May progressed. Oil drooped amid signs ofoversupply, while gold prices rose modestly in May.

Geopolitics

Ukraine has received approval from the US and Germany to use their weapons to hit targets inside Russia – another step up in the conflict.

Key data

Personal consumer expenditures (PCE) inflation held steady at an annual rate of 2.7% in April (still well above the Fed’s target of 2%), while core PCE was at 2.8%. In other data, personal income grew a monthly rate of 0.3% in April, while personal spending rose 0.2%. US GDP growth in Q1 was revised down to an annualised 1.3% from previous estimates of 1.6%. Headline consumer inflation in the euro area rose at an annual rate of 2.6% in May, up from 2.4% in April. Core inflation rose to 2.9% from 2.7%. China’s official purchasing managers’ index for manufacturing fell to 49.5 in May from 50.4 in April, with a sharp fall in export orders. The alternative Caixin manufacturing PMI rose to 51.7 from 51.4. India’s GDP growth exceeded expectations, coming in at 7.8% year-on-year in Q4.

[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12- month return in USD): 2019, 31.5%; 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%.

[ii] Source: Pictet WM AA&MR, Thomson Reuters. Performances passées, STOXX Europe 600 (rendement net sur 12 mois en euros): 2019, 27,6%; 2020, -1,5%; 2021, 25,5%; 2022, - 10,1%; 2023, 16,5%.