Equity markets moved erratically last week as investors expressed concern about the progress of negotiations on raising the US debt ceiling as well as about the persistence of inflation. AI-linked tech stocks were heavily in demand.

Bond yields rose sharply, with the US 10-year yield back at 3.80% and the German equivalent at 2.50%.

In the US, real GDP growth for the first quarter of 2023 was revised to an annualised 1.3%, compared with an initial estimate of 1.1%, resulting therefore in a less marked slowdown from 2.6% in the fourth quarter of 2022.

In addition, growth in the US private sector accelerated in May, with the composite PMI index rising to 54.5 from 53.4 in April. Specifically, the services sector benefited from stronger demand, while the manufacturing sector saw a slight increase in output. Durable goods orders rose by 1.1% in April, after rising by1.1% in April, following a 3.3% surge in March excluding transportation machinery. They fell by 0.2% month-on-month.

Still in the US, consumer spending rose by 0.8% in April month-on-month, outstripping the consensus forecast of 0.4%.

Personal consumption expenditures (PCE), a metric for gauging inflation, rose by 4.4% year-on-year in April, with a 4.7% surge excluding food and energy – up slightly on their March levels of 4.2% and 4.6%, respectively. These higher-than-expected numbers increase the likelihood of a further Fed rate hike in June.

On the unemployment front, initial jobless claims increased by 4,000 in the week starting 15 May to 229,000, up from 225,000 the previous week, versus a forecast of 245,000.

In Europe, manufacturing activity also slowed in May, with the PMI clocking in at 44.6 versus the estimated figure of 46. By contrast, services continued to perform well, with the services PMI standing at 55.9 compared with 56.2 in April. Overall, economic activity contracted for the first time in three months, while inflation remained high.

The German economy contracted slightly in the first quarter of 2023, marking its entry into recession after two consecutive quarters of GDP growth in the red. GDP in Europe’s leading economy fell by 0.3% in the first three months of the year, adjusted for price effects and seasonal swings. German GDP had shrunk by 0.5% in the fourth quarter of 2022.

The S&P 500 ended the week ahead marginally by 0.32% while the tech-heavy Nasdaq swung upwards by 2.51%. The Stoxx 600 Europe index gave up 1.58%.

Source: Bonhôte

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