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2304 2024

Market Insights

Market Insights Week 17

Bas Kooijman

As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.

In recent weeks, the U.S. stock market has experienced a downturn, marking its third consecutive week of broad losses. This trend is largely driven by escalating tensions in the Middle East and persistent concerns that U.S. interest rates may remain elevated for an extended period.

The technology sector, especially mega-cap firms, has been particularly hard-hit as rising interest rates increase the discount rates on future earnings, dampening investor enthusiasm. Furthermore, a disappointing first-quarter revenue report from ASML Holdings, a key supplier to advanced chipmakers, has also contributed to negative sentiment in sectors tied to artificial intelligence.

As the week commenced, initial optimism due to a mitigated impact from Iran's strikes on Israel quickly reversed as geopolitical tensions intensified following aggressive responses from Israel. These developments have cast a shadow over market sentiments, contributing to the downturn observed towards the end of the week.

European markets have shown a mixed response amidst ongoing geopolitical unrest and economic data. The STOXX Europe 600 Index fell by 1.18%, reflecting investor caution. While Germany’s DAX dropped by 1.08%, Italy’s FTSE MIB saw a modest gain. The fluctuation in indices underscores the region's varied response to current global uncertainties.

Inflation in the UK has slightly eased, though it remains above expectations, with the Bank of England (BoE) now indicating that interest rate cuts may be deferred to later in the year. Despite a slight slowdown in wage growth and services inflation, the overall economic environment remains tense, with the BoE Governor projecting a gradual resolution to inflationary pressures at the current employment levels. On the other hand, the European Central Bank (ECB) maintains a cautious outlook, emphasizing that any adjustments to the rates in June will depend heavily on upcoming economic data, with a particular focus on oil price movements due to its significant impact on inflation.

In Asia, Japan's stock markets have notably declined, influenced by both the increased geopolitical tensions and concerns over diminishing AI-related demand. The Nikkei 225 and TOPIX indices saw significant weekly losses. Despite these challenges, the yen showed some resilience, regarded as a safe-haven currency, although it remains near historic lows against the dollar. No immediate intervention by Japanese authorities in the currency market indicates a cautious approach towards managing the yen's valuation amidst ongoing market volatility.

Conversely, China reported a robust first quarter with GDP growth exceeding expectations, providing a positive contrast to the struggles seen in Japan. However, the economic indicators remain mixed, with industrial production and retail sales growing slower than anticipated, while fixed asset investment exceeded forecasts. Despite these gains, the housing market continues to struggle, posing ongoing challenges to the broader economic stability.

In summary, while the U.S. grapples with interest rate concerns and geopolitical tensions, Europe remains cautious amid inflationary pressures, and Asian markets show a mixed but cautiously optimistic outlook in response to economic data and geopolitical developments. Each region's market dynamics underscore the complex interplay of local and global factors shaping the current economic landscape.

Bas Kooijman

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