Written by Chris Ayton
Last week was a positive week for both bonds and equities, supported by technology-related earnings results in the US as well as the starting gun being fired on interest rate reductions by major central banks. The MSCI All Country World Index rose +1.2% over the week. Within global fixed income markets, the Bloomberg Global Aggregate Index rose +0.4% in sterling hedged terms, with longer-dated bonds, which are more sensitive to interest rate reductions, posting some of the strongest returns.
In the US, a prominent index that tracks factory activity declined more than expected highlighting weakened activity in housing, construction and capital investment. The market took this as a sign of potential economic slowdown and a data point that could provide further scope for the Federal Reserve to start to cut interest rates, although this view was later tempered by some stronger than expected labour market data. The US equity market (S&P 500 +1.4% over the week in GBP terms) was also supported by continued strength in US chip maker, Nvidia, as it unveiled its next generation of Artificial Intelligence chips ahead of schedule. In the process, Nvidia’s market capitalisation surpassed $3 trillion, overtaking Apple to become the world’s second-largest listed company. Incredibly, one third of the S&P 500 Index’s +13% return in 2024 has come solely from Nvidia’s meteoric rise.
In Europe, financial news was led by the European Central Bank (ECB) reducing its benchmark interest rate by 0.25%, its first cut in over 5 years. However, ECB President, Christine Lagarde, said further rate cuts would be dependent on inflationary pressures easing further, something that will not be aided by recent data indicating upticks in both inflation and wages in Europe. Nevertheless, the MSCI Europe ex-UK Index was up +1.3% for the week in GBP terms.
News in Asia was dominated by a surprise election result in India. Based on exit polls, Prime Minister Narendra Modi’s BJP Party was expected to extend its existing parliamentary majority. However, on the contrary, they lost their overall majority. Although Mr. Modi will remain in power, his BJP party are going to have to rely on the support of an alliance of other smaller like-minded parties in order to pass further groundbreaking and business friendly economic, land and labour reforms that India requires in order to support its drive to become Asia’s new manufacturing powerhouse.
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