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 faced declines over the holiday-shortened week, although it concluded a month of overall gains. Notably, small-cap stocks outperformed large-cap stocks, and value stocks showed better resilience compared to growth shares. The technology-heavy Nasdaq Composite was particularly weak, driven by a significant drop in Salesforce shares following a revenue miss for the first quarter. The market was closed on Monday in observance of Memorial Day.

Economic data released during the week included the Commerce Department’s personal consumption expenditure (PCE) price index report. Core PCE prices, the Federal Reserve’s preferred inflation gauge, rose 0.2% in April, indicating a potential calming of inflation pressures compared to earlier in the year. Supercore inflation, which excludes energy and housing, presented a mixed picture with a 0.3% rise, showing slight variations from previous months. Additionally, the Case-Shiller index indicated a 7.4% year-over-year increase in housing prices as of March, the highest since October 2022. Rising home prices and mortgage rates led to a decline in mortgage applications by 5.7% and a 7.7% drop in pending home sales for April, marking the largest decline in over three years.

Treasury auctions also influenced market sentiment, with subdued demand for five- and seven-year notes raising concerns about funding the U.S. deficit and potential impacts on yields. Minneapolis Fed President Neel Kashkari’s comments about the possibility of future rate increases added to the cautious market tone. Despite these challenges, fixed income markets remained relatively subdued, with the yield on the 10-year U.S. Treasury note ending the week lower. However, high-yield bond activity was below average, and high-yield funds experienced negative flows.

In Europe, the STOXX Europe 600 Index ended the week 0.46% lower, influenced by unexpectedly high eurozone inflation figures, which increased uncertainty regarding future policy easing by the European Central Bank (ECB). Major indexes such as France’s CAC 40 and Germany’s DAX also saw declines, while Italy’s FTSE MIB remained flat and the UK’s FTSE 100 fell slightly.

Eurozone inflation rose to 2.6% in May, exceeding expectations and marking the first increase in five months. Core inflation, excluding volatile items like energy and food, also increased to 2.9%. The unemployment rate in the eurozone fell to a record low of 6.4% in April. ECB Chief Economist Philip Lane indicated that the central bank might lower borrowing costs at the upcoming June meeting, although the pace of easing would depend on incoming economic data.

In the UK, mortgage approvals slightly declined to 61,140 in April, below expectations. Meanwhile, the Nationwide Building Society reported a 0.4% rise in house prices for May, reversing declines from the previous two months and showing a 1.3% year-over-year increase.

In Japan, stock markets delivered mixed results with the Nikkei 225 Index falling 0.4% and the broader TOPIX Index gaining 1.1%. A downward revision in U.S. economic growth data fueled expectations of a Federal Reserve rate cut, boosting global risk appetite. However, speculation about further monetary policy normalization by the Bank of Japan (BoJ) kept investors cautious. The yield on the 10-year Japanese government bond rose to 1.07% amid ongoing uncertainty. The yen depreciated slightly against the U.S. dollar, and authorities were expected to have intervened in currency markets to support the yen.

Tokyo-area core consumer inflation accelerated to 1.9% year-on-year in May, driven largely by higher electricity bills but remained below the BoJ's 2% target. Retail sales in Japan exceeded expectations in April, while industrial output unexpectedly fell, reflecting a mixed economic outlook.

In China, equities remained flat with the Shanghai Composite Index stable and the CSI 300 down 0.6%. The Hang Seng Index in Hong Kong fell 2.84%. A weaker-than-expected manufacturing PMI reading for May highlighted economic growth challenges, with the index falling into contraction territory at 49.5. Non-manufacturing PMI also showed slower growth, while industrial profits rebounded by 4% year-over-year in April. Despite these challenges, economists remain optimistic about China meeting its annual growth target of around 5%. Chinese policymakers introduced measures to boost homebuying demand in Shanghai, including lower down payment requirements and reduced mortgage interest rates. These steps followed broader government efforts to support the struggling property sector, which continues to weigh on the overall economy.

Global markets experienced mixed outcomes last week, with U.S. and European stocks facing declines amid cautious economic data and inflation concerns, while Japan and China grappled with monetary policy uncertainties and growth challenges.