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Market Insights

Market Insights Week 19

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.

The U.S. stock market ended on a high note after a volatile week marked by significant economic and earnings reports. Growth stocks led the gains, outshining value shares which remained stagnant. The Russell 2000 Index, representative of small-cap stocks, outperformed large-cap indices, marking a slight year-to-date gain. The week's highlight was the second busiest for first-quarter earnings, with Apple's positive earnings announcement post-trading on Thursday catalyzing a rebound in market sentiment. Apple revealed a historic $110 billion share buyback, alongside beating revenue expectations, which buoyed investor confidence.

Further boosting the market was Tesla's surge, driven by CEO Elon Musk's unexpected appearance in China and news of tentative approval for the company’s self-driving technology. The U.S. employment scenario also played a pivotal role, with the April jobs report indicating a cooling labor market, hinting at easing inflation pressures, which investors welcomed. The slowdown in wage growth and a slight increase in the unemployment rate to 3.9% suggested a deceleration in inflationary trends, alleviating fears of imminent stagflation.

European stock markets presented a mixed picture, with overall cautious investor sentiment due to fluctuating corporate earnings and uncertainties over future interest rate hikes. The STOXX Europe 600 Index saw a modest decline. Notably, Germany's DAX and France's CAC 40 experienced losses, while the UK's FTSE 100 enjoyed gains, bolstered by robust performances in the mining and energy sectors. Eurozone economic data was more encouraging, with GDP unexpectedly expanding in the first quarter of 2024 after a brief recession, and core inflation showing signs of slowing.

Interest rates and their future trajectory remained a focal point. European bond yields generally fell as ECB policymakers hinted at potentially lower borrowing costs starting in June, suggesting a more optimistic inflation outlook. In the UK, despite a rise in mortgage approvals signaling a recovery, the housing market appeared to cool off, with prices dropping for the second consecutive month. This mixed economic backdrop paints a complex picture for Europe, with recovery signs tempered by ongoing uncertainties.

In Asia, Japanese stocks ended the week positively amidst speculation of government intervention to support the yen, which saw a significant strengthening against the dollar. Corporate Japan benefited from a favorable earnings season, buoyed by a weak yen, price increases, and a surge in tourism. Despite potential rate hikes, Japan's monetary policy remains highly accommodative, helping to sustain favorable financial conditions.

Turning to China, the markets there experienced gains during a holiday-shortened week, spurred by investor optimism over potential government measures to stimulate growth. The Politburo’s commitment to using monetary and fiscal tools more flexibly to boost demand lifted market spirits. The manufacturing sector continued to expand, although industrial profits growth slowed, underscoring persistent deflationary pressures. The ongoing property crisis further dampened economic prospects, with a significant slump in new home sales reflecting broader consumer reluctance to spend. This challenging landscape in China underscores the intricate dynamics at play in emerging markets, where policy measures and economic indicators heavily influence market trajectories.

In summary, global markets experienced mixed results last week, with the U.S. and Japanese markets rising on positive corporate earnings and economic data, while European markets showed varied performance amid interest rate uncertainty. In China, optimism over government support helped lift markets despite challenges in the property sector.

Bas Kooijman

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