Hey folks, we are almost mid-way thru 2024 and markets are showing strong resilience in the face of less rate cuts than originally forecast. Will the second half of ’24 give us the returns of the first half? Get my take here in this week’s market round-up.
MARKET SOUND BITES:
Major indexes ended lower over the holiday-shortened week but rounded out a month of gains. For the week we saw small-caps performing better than large caps, and value stocks held up better than growth shares. And Friday, rounding out the month of May, before close we saw a mad dash to Value and Risk-Off equites.
We saw the Commerce Department’s personal consumption expenditure (PCE) price index report, released Friday morning. Core (less food and energy) PCE prices—widely considered the Federal Reserve’s preferred inflation gauge—rose 0.2% in April, down slightly from the previous two months and seemingly a period of calming inflation pressures following January’s 0.5% spike. “Supercore” inflation—PCE services excluding energy and housing—which has lately become more of a focus because of the unusual dynamics of housing and rental costs—offered a more mixed picture, rising 0.3%, down a tick from March but a tick up from February’s increase. Separately, the Case-Shiller index of housing prices in major U.S. cities, reported Tuesday, rose 7.4% over the 12 months ended in March, the highest level since October 2022.
The Treasury Department’s midweek auctions of five- and seven-year notes, which were met with subdued demand. Weak sales raised concerns that funding the U.S. deficit will drive up yields at a time when the Fed appears to be in no rush to cut rates. Fed Gov. Neel Kashkari may have contributed to a sell-off on Tuesday by saying, “I don’t think anybody has totally taken rate increases off the table. I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.”
In Europe, headline inflation rose for the first time in five months, with the year-over-year increase in consumer prices ticking up to 2.6% in May from 2.4% in each of the previous two months. This reading exceeded a consensus estimate of 2.5%. Services inflation accelerated to 4.1% from 3.7% in April. Meanwhile, a measure of core inflation that excludes energy, food, alcohol, and tobacco prices increased to 2.9% from 2.7%. The unemployment rate fell to a record low of 6.4% in April after coming in at 6.5% in each of the prior five months. ECB Chief Economist Philip Lane still signaled that borrowing costs would probably be lowered at the June 6 meeting.
In Japan, investors’ focus remained firmly on the prospect and likely timing of further monetary policy normalization by the Bank of Japan (BoJ). The yield on the 10-year Japanese government bond (JGB) rose to 1.07%, from 1.00% at the end of the previous week, amid continued uncertainty about when the BoJ could next raise short-term interest rates. We saw the Core CPI, a leading indicator of nationwide trends, showed that the rate of consumer inflation accelerated in May to 1.9% year on year but still below the BoJ target of 2%.
In China, the official manufacturing purchasing managers’ index (PMI) fell to a below-consensus 49.5 in May from 50.4 in April, marking the first monthly contraction since February. The gauge lagged the 50-mark level, separating growth from contraction. The PMI’s subindexes for new orders and exports also declined. The nonmanufacturing PMI, which measures construction and services activity, slipped to a weaker-than-expected 51.1 from 51.2 in April amid slower construction growth. Earlier in the week, the International Monetary Fund upgraded its 2024 economic growth forecast for China to 5%, up from its April projection of 4.6%, following Beijing’s support measures and a stronger-than-expected first-quarter expansion.
Get My take in this Week’s Market Round-Up
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