United States
Stocks experienced various returns as investors focused on the season’s busiest week of quarterly earnings reports. Around 35% of companies listed in the S&P 500 Index, representing approximately 44% of its market capitalisation, were scheduled to announce their results this week. On Thursday, Microsoft, Apple, Amazon.com, and Meta Platforms (parent company of Facebook)—contributed to nearly half of the S&P 500’s significant increase. This surge, the largest since January 6, was primarily driven by Meta’s 14% rise due to better-than-expected earnings.
However, cyclical sectors performed poorly as investors considered various indicators of an economic slowdown, particularly in the manufacturing sector. Earlier in the week, regional manufacturing activity measures fell well below expectations, signalling reduced production at factories during April.Â
Wednesday’s durable goods data initially appeared optimistic, showing a 3.2% increase in March orders. However, when excluding aircraft and defence, which is typically seen as a better gauge of business spending plans, orders decreased by 0.4%. Retail inventories rose by 0.4% in the month, surpassing expectations and reaching the highest since last August. These figures indicate a need for further production and spending cutbacks. On Thursday, the Commerce Department’s preliminary estimate of the first-quarter gross domestic product (GDP) growth came in at 1.1%, significantly lower than the consensus expectation of around 2%.
Concerns over a potential economic slowdown and recession were exacerbated by renewed turmoil in the banking industry. California’s First Republic Bank’s earnings release on Tuesday revealed significant deposit outflows exceeding USD 100 billion in the first quarter, causing the stock to decline by approximately 50% and weighing down the regional banking sector. Furthermore, on Friday morning, First Republic’s stock dropped further after CNBC reported that the Federal Deposit Insurance Corporation planned to take the bank into receivership that evening.
The high-yield market experienced subdued trading volumes due to the Federal Reserve’s blackout period and the anticipation surrounding earnings releases. However, sentiment improved as equities rallied following the release of the weaker-than-expected GDP figure. The weak economic data and news related to First Republic Bank also hurt the bank loan market.
Europe
Europe’s stock markets declined amid concerns that increasing interest rates could push the economy into recession. The pan-European STOXX Europe 600 Index ended 0.50% lower, with major indexes showing mixed to lower results. The CAC 40 Index in France fell 1.13%, while Italy’s FTSE MIB dropped 2.41%. Germany’s DAX rose 0.26%, and the UK’s FTSE 100 Index lost 0.55%.
The 10-year German bund yield experienced volatility due to worries about the U.S. banking industry and a decline in Spanish producer price inflation before rising again midweek following an upside surprise in U.S. core personal consumption expenditures inflation. News of stagnating first-quarter German economic growth and a more dovish-than-expected Bank of Japan policy meeting contributed to a yield pullback. Peripheral eurozone and UK government bonds generally followed core markets.
Preliminary data revealed that the eurozone economy expanded less than expected in the first quarter, with GDP up by 0.1%, compared to economists’ forecast of 0.15%. The German economy stagnated, weaker than the economists’ predicted 0.2% growth rate. Annual inflation in Germany eased to 7.6% in April, while in France, consumer prices increased by 6.9%, and Spain’s headline inflation rate rose to 3.8%.
The European Commission reported that economic sentiment in the eurozone remained stable in April, with more optimism in the consumer, retail, and services sectors, while manufacturers were still pessimistic about production and order books. The UK’s budget deficit rose to a record high of GBP 139 billion in the year to March, but this was lower than the forecast made by the Office for Budget Responsibility. Lloyds Bank’s Business Barometer confidence gauge rose to 33%, indicating greater optimism about the economy.
As expected, Sweden’s central bank, the Riksbank, raised its key interest rate by a half percentage point to 3.5%, suggesting a quarter-point increase in June or September.
Japan
Over the week, Japan’s stock markets experienced gains, with the Nikkei 225 Index and broader TOPIX Index rising by 1.02% and 1.10%, respectively. The Bank of Japan’s (BoJ) commitment to its ultra-loose stance, including its yield curve control framework, supported the markets by leaving monetary policy unchanged. Additionally, easing Japan’s border controls ahead of the Golden Week holidays, expected to increase arrivals, particularly from China, further bolstered sentiment.
The 10-year Japanese government bond (JGB) yield fell to 0.41% from 0.46% the prior week, primarily due to the BoJ’s dovish stance. The yen also weakened, trading at about JPY 135 against the U.S. dollar, compared to JPY 134 the previous week, following the announcement of policy continuity.
Although the BoJ’s April 27-28 meeting under new Governor Kazuo Ueda signalled policy continuity, it announced a comprehensive monetary policy review, expected to last around one and a half years. The bank removed forward guidance on interest rates and the mention of COVID’s impact while emphasising its commitment to easing.
The BoJ upgraded its forecasts for Japan’s core inflation in its separate Outlook report. The core consumer price index rose 3.5% year-on-year, surpassing expectations and BoJ’s inflation target. However, Ueda noted that while a positive price trend is emerging, it has not yet reached a level where the bank can confidently declare that it has met its 2% inflation target.
China
China’s stock markets closed mixed ahead of the Labor Day holiday, with the Shanghai Stock Exchange Index rising 0.67%, while the blue-chip CSI 300 slipped 0.09% in local currency terms. China’s top decision-making body, the Politburo reaffirmed its supportive stance towards the economy, promising to maintain its “forceful” fiscal and monetary policies to tackle economic transformation and insufficient domestic demand. Despite the economy expanding at its fastest rate in a year in Q1 2023, policymakers remain cautious about headwinds such as high youth unemployment and global growth slowdown. The State Council also announced measures to boost growth in the trade sector, including visa issuance for overseas businesspeople and consolidating the shipment of vehicles. The People’s Bank of China continued to extend its short-term cash injections via seven-day reverse repurchase agreements for the 11th consecutive day on Friday, injecting a net total of RMB 637 billion to ensure adequate liquidity at month-end. Trading is suspended from May 1 to May 3, with trading resuming on May 4.
Market indicesÂ
| Â |
In Local Currency |
In Sterling Pound |
||
|
Index |
Last week |
YTD |
Last week |
YTD |
|
UK |
 |  |  |  |
|
FTSE 100 Index |
-0.47% |
7.03% |
-0.47% |
7.03% |
|
US |
 |  |  |  |
|
S&P 500 Index |
0.88% |
9.00% |
-0.49% |
4.32% |
|
Europe |
 |  |  |  |
|
Euro Stoxx 50 Index |
-0.66% |
14.10% |
-1.41% |
12.96% |
|
Asia |
 |  |  |  |
|
Nikkei 225 Index |
1.02% |
9.77% |
-1.61% |
1.80% |
|
Hang Seng Index |
-0.90% |
3.32% |
-2.27% |
-1.68% |
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