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Market jitters hit equities

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 31 May 2024.

| 7 min read

Equity markets fell on renewed concern about the length of time interest rates will need to remain high. A lukewarm response to auctions of US government debt also hit sentiment. This followed another record close for the Nasdaq Composite earlier in the week as shares in Nvidia, the artificial intelligence chip group, continued to rally.

A key US inflation report for April will be released later on Friday, which could help ease current market jitters. The Personal Consumption Expenditures (PCE) index is forecast to show a 0.3% month-on-month increase, with many analysts expecting a reading of 0.2%. This is a key release for market sentiment as it is a data point the Federal Reserve monitors closely.

Over the week, the blue-chip FTSE 100 index was down 1.0% by mid-session on Friday, with the more UK-focused FTSE 250 trading up 0.2%.

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Economics

Michelle Bowman, a Federal Reserve Governor, gave an important lecture on the central bank’s policy and its use of its own balance sheet to manage the economy. She said: The Federal Open Market Committee would likely have benefitted from an earlier discussion and decision to begin tapering and subsequently end asset purchases in 2021 given the signs of emerging inflationary pressures… whilst a robust and rapid response by the FOMC was appropriate in 2020 I think it is worth asking whether such a robust response for so long was appropriate”. This is her own view, but it is also a big admission by one Governor of the Fed, put out through official Fed channels and worked up with the help of Fed staff. It is very likely the accommodative money policy did contribute to the inflation the Fed is meant to control.

Yields on US government bonds spiked after weak demand in recent auctions for US debt.

Minneapolis Fed President Neel Kashkari reiterated that the central bank was not convinced inflation is falling quickly enough to warrant rate cuts. He went further still by saying more rate hikes aren't off the table if progress stalls.

Yields on US government bonds spiked after weak demand in recent auctions for US debt. The Treasury auctioned $297bn in bills and notes on Tuesday alone, with the lukewarm investor response leading to what one economist called market “indigestion”.

Shop price inflation in the UK slowed to 0.6% in May from 0.8% in April, according to the widely watched British Retail Consortium-NeilsenIQ shop price index. The figure was the lowest rate of shop-price inflation since November 2021, and brought inflation below the three-month average of 0.9%. Non-food prices continued to deflate, with an annual rate of -0.8% in May, compared to -0.6% in April. That was the lowest deflation rate since October 2021, and was also below the three-month average, which was -0.4%.

Geopolitics

Donald Trump was convicted on all 34 counts of falsifying business records in a criminal trial in New York. It is the first time a former or serving US president has been convicted of a crime. He is due to be sentenced on 11 July. A prison sentence is possible, but a fine is the more likely outcome. The trials of Donald Trump.

China’s President Xi Jinping called for an international peace conference to resolve the conflict in Gaza. Mr Xi reiterated calls for the establishment of an independent Palestinian state and promised more humanitarian aid for people in Gaza at the opening of a summit with leaders of Arab states in Beijing. “Since last October, the Palestinian-Israeli conflict has escalated drastically, throwing people into tremendous suffering,” he said in a speech opening the China-Arab States Cooperation Forum. “War should not continue indefinitely.”

Emmanuel Macron called on the European Union to stop being naive in the face of growing competition from the US and China. The French president repeated calls for a “buy European” strategy in key sectors such as defence.

Meta Platforms removed hundreds of Facebook accounts associated with covert influence campaigns from China, Israel, Iran and Russia. Some of these accounts were using artificial intelligence tools to generate disinformation and were using the technology to produce fake images, videos and texts.

During the high point for globalisation the democracies had allowed their military spending and their supply of weapons to be eroded. This is now reversing. The world is spending more on defence.

Company news

Ocado and St James's Place are likely to be demoted from the FTSE 100 in the latest quarterly reshuffle, with cybersecurity group Darktrace and social housing group Vistry expected to join the blue-chip index. Index compiler FTSE Russell released indicative data on Wednesday based on market capitalisations on 24 May although the actual reshuffle will be based on data from the close of play on 4 June.

The government reduced its stake in NatWest after the upcoming general election resulting in plans for a retail share sale to the public to be suspended. The sale had been expected to take place this summer. It sold £1.24bn worth of shares to the bank via a buyback. The sale reduces its stake to 22.5%, compared with 38% at the end of last year.

Mining giant BHP pulled out of its proposed takeover of smaller peer Anglo-American. South-Africa-based Anglo rejected BHP's calls to extend talks on Wednesday morning and BHP said it was denied access to "key information" from Anglo during the negotiations "despite numerous requests". Anglo and the South African government have also cited concerns about BHP’s proposal to spin off the South African businesses[LH1] .

Royal Mail owner International Distribution Services agreed to a formal takeover offer. Czech billionaire Daniel Kretinsky has offered £5bn, including debts, for the company. The offer includes commitments to retain the name, brand, UK headquarters and UK tax residency, as well as protections for employee benefits and pensions.

Investment company Intermediate Capital Group more than doubled its annual profits as it reported a huge increase in performance fee income. Management fee income increased 5% to £505.4m, surpassing half a billion pounds for the first time. Its assets under management rose by nearly a quarter.

Shares in Auto Trader Group hit a record high following its full-year results amid strong demand for used cars. The online car marketplace highlighted that it experienced "continually strong levels of demand" in both new and used car sectors, with an uptick in supply throughout the year. Annual revenues rose 14% to £570.9m in what it described as a “robust” second-hand car market, with demand ahead of that seen prior to the Covid-19 pandemic.

Oil services company Wood Group said on Wednesday it was evaluating a fourth and final "unsolicited, preliminary and conditional" takeover proposal from Sidara at 230p a share. The latest offer from the Dubai-based engineering and consulting group is a 52% premium Wood Group’s closing share price on 29 April, the before Sidara’s initial proposal.

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Market jitters hit equities

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