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2205 2023

Market Insights

Market Insights - Week 21

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.

Stocks had a solid week, with the S&P 500 Index breaking the 4,200 level and recording gains. Mega-cap technology-related stocks, such as Alphabet and Meta Platforms, performed well, along with chipmakers like NVIDIA and AMD. Regional bank shares also rallied, and there was a positive shift in sentiment around debt ceiling negotiations. Economic data showed retail sales below expectations and industrial production above expectations. The labor market demonstrated resilience with lower jobless claims and continuing claims reaching a nine-week low. Fed Chair Jerome Powell highlighted the need to address high inflation but also acknowledged that tightening credit conditions might affect the need for rate hikes. Bond yields rose, driven by positive economic surprises. The municipal bond market faced pressure due to increased supply, while the investment-grade corporate bond market saw higher-than-expected issuance. The high yield market had lower volumes as investors monitored debt ceiling developments and reacted to hawkish Fed commentary. Overall, the market showed strength amid positive sentiment and economic indicators.

European shares advanced with growing optimism surrounding interest rates and U.S. debt default concerns. The STOXX Europe 600 Index closed the week on a positive note, supported by Germany's DAX and France's CAC 40 Index. Bond yields in Europe rose, reflecting improved confidence in the European economy and progress in U.S. debt ceiling negotiations. While Eurozone industrial production weakened more than expected, signaling a potential industrial recession, the European Commission raised its growth and inflation forecasts for the eurozone, projecting higher GDP expansion and persistent inflation. In the UK, Bank of England Governor Andrew Bailey emphasized the need for further monetary tightening if inflationary pressures persisted, while the country's unemployment rate experienced a slight increase with strong wage growth.

Meanwhile, Japan's stock markets extended their winning streak, reaching near 33-year highs. The Nikkei 225 and TOPIX Index benefited from solid domestic earnings, yen depreciation, and increased overseas investment in Japanese equities. Economic growth in Japan exceeded expectations in the first quarter, driven by a revival in consumption following COVID-19 restrictions. Hopes for a resolution on the U.S. debt ceiling further boosted investor sentiment. The yen weakened against the U.S. dollar, and there were indications of accelerated core consumer prices, leading to speculations about adjustments to the Bank of Japan's stimulus program.

In China, equities showed mixed performance amid concerns about a potential slowdown in the post-COVID recovery. The Shanghai Stock Exchange and CSI 300 saw modest gains, while the Hang Seng Index in Hong Kong declined. Official data revealed weaker-than-expected growth in industrial output, retail sales, and fixed asset investment in April. China faced challenges in attracting young talent, with record-high youth unemployment. The People's Bank of China injected liquidity into the banking system, pledging sufficient credit growth and liquidity. However, the Chinese yuan depreciated against the U.S. dollar due to signs of economic slowdown and dollar strength. Home prices in China continued to rise, albeit at a slower pace, raising concerns about the overall health of the property sector.

Overall, despite some challenges and mixed performance in different regions, the global markets maintained an optimistic outlook, fueled by hopes of improved economic conditions, controlled inflation, and ongoing efforts to address key concerns.

Bas Kooijman

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