Weekly Market Update Monday 29th May 2023
US technology stocks buck the trend as the semiconductor company Nvidia, beats sales forecasts by 50%
Markets were choppy this week, with the US yet to reach an agreement on the debt ceiling, with a potential default less than a fortnight away. Economic data released this week both in the US and Europe painted a picture of continued inflationary pressures, with bond yields rising (bond yields move inversely to price) across the maturity spectrum. However, the US company Nvidia, a designer and manufacturer of semiconductor chips released results on Wednesday, with sales exceeding analysts’ expectations by more than 50%. This was driven by a surge of interest in artificial intelligence (AI), dragging the whole semiconductor sector up with it as well as technology names with an interest in AI such as Microsoft and Alphabet, Google’s parent company.
As of 2pm on Friday, London time, US equities fell 1.0% over the week, whilst US technology stocks rose by 0.3%, helped by the stratospheric rise in Nvidia which increased in value by over 25% following its results, with its market capitalisation rapidly closing in on $1 trillion. European stocks fell 2.2%, as did UK equities. The Japanese market fell by 0.7% whilst Australian stocks lost 1.7%. Emerging markets also lost money, falling by 1.4% with Chinese onshore listed ‘A’ share stocks falling by 2.2% and offshore Hong Kong Stocks losing 3.6%.
UK Gilt prices sell off back to levels last seen during the ‘mini-budget’ crisis of last October
US Treasury yields rose, with 2-year yields now trading at 4.57%, and 10-year yields yielding 3.82%. Equivalent German bunds are yielding 2.91% and 2.52% respectively. Whilst one of the biggest moves for the week was reserved for UK gilts following the release of inflation numbers that remained stubbornly higher than expectations. The UK consumer price index (CPI) for the year to April came in at 8.7%, a sharp fall from the previous reading of 10.1%, but significantly higher than forecasts of 8.2%. Perhaps even more significantly, excluding food and energy, CPI actually rose by 0.6% to 6.8% for the year. This pushed 2-year and 10-year gilt yields higher by 0.54% and 0.34% respectively to 4.50% and 4.34% as markets priced in peak UK interest rates of 5.5% by the year end.
Industrial metals weaken on rising recessionary risks
As higher rates were priced into markets, industrial metals fell on rising concerns of recessionary risk. The copper price fell by 3.5%, now trading at $7,915 a tonne. Iron ore prices fell over 5%. European natural gas prices took yet another leg down, now priced at €24.25 per MegaWatt Hour, taking the price beneath its 50-year average, having wiped out all the increases resulting from the Russian invasion of Ukraine. Gold also fell by 1.7%, now priced at $1,967 an ounce as the market priced in a further rate rise in the US. On Friday, the latest Personal Consumption Expenditures (PCE) index data was released in the US, the Fed’s preferred measure of inflation. For the year to April, PCE rose by 4.4%, higher than forecasts and higher than the prior reading. Excluding food and energy, the PCE rose by 0.1%, coming in at 4.7%. Crude oil bucked the trend, as Brent crude traded higher by 1.9%, with a barrel now priced at $77.0.
US Dollar strength returns
The US dollar traded higher this week, with the Dollar index rising by 0.8% against a basket of internationally traded currencies. Versus the Euro and Sterling, the dollar rose by 0.6%, now trading at $1.074 and $1.237% respectively.