Weekly house view | M&A pick up

Weekly house view | M&A pick up

The CIO's view of the week ahead.

The week in review

Financial markets were rattled last week by inflation data that seemed to bury any hope of a near-term rate cut in the US. But Q1 results, especially from major tech companies, provided relief, with the S&P 500[i] gaining 2.7% on the week (in USD). Asian (ex Japan) markets were among the strongest performers last week, thanks largely to China, where low valuations and ‘National Team’ purchasing seemed to put a floor under markets (the MSCI China[ii] rose 8.3% in USD). The inflation data sparked only a modest sell-off in the well-prepared market for long-term US Treasuries. European bond markets were also comparatively calm, even though France’s sovereign rating came up for review. Noninvestment-grade bonds made gains and spreads narrowed in credits generally. While the US dollar declined against sterling and the euro, it made a new 34-year high against the yen after the Bank of Japan held interest rates close to zero. Gold prices dropped on the week.

Politics

Allies of Republican US presidential candidate Donald Trump are reportedly drafting proposals that would attempt to erode the Federal Reserve’s independence if he wins a second term in November.

Key data

Preliminary figures showed US GDP grew 1.6% in Q1, down from 3.4% in Q4 23. S&P Global’s flash purchasing manager indexes (PMI) for both US manufacturing and services fell in April, indicating slower growth.  On the inflation front, annual personal consumer expenditure (PCE) came in at 2.7% in March, up from 2.5% in February. Core PCE was unchanged at 2.8%. S&P Global’s PMI indexes showed business activity improving in Europe. The composite PMI for the euro area rose to an 11-month of 51.4 in April, although services activity remains much stronger than manufacturing. In the UK, the composite PMI rose to a robust 54. Rising for the third consecutive month in April, the Ifo business climate survey also suggested the mood is brightening in Germany. South Korea’s GDP rose 1.3% in Q1 over the previous quarter and 3.4% on an annual basis according to preliminary estimates.

[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. Past performance, MSCI China (net 12-month return in USD): 2019, 23.7%; 2020, 29.7%; 2021, -21.6%; 2022, -21.8%; 2024, -11%.
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