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The rally gets another leg up

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 7 June 2024.

| 7 min read

The S&P 500 hit its 25th all-time high of 2024 and the Nasdaq Composite its 13th after Nvidia reached $3 trillion in market value. The artificial intelligence (AI) chip group overtook Apple in terms of market capitalisation in the process. Shares of Nvidia have surged almost 150% so far in the year to date.

Friday’s US payrolls data may help determine whether the bull run in equities can stretch into the summer. Data this week showed a rebound in the ISM Services index, easing fears the American economy might be rapidly slowing.

Both the European Central Bank and Bank of Canada cut interest rates, the first major central banks to do so in the current cycle.

Over the week, the blue-chip FTSE 100 index was down 0.5% by mid-session on Friday, with the more UK-focused FTSE 250 trading 0.6% lower.

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Major elections and markets

Economics

The European Union (EU) was the second major global economy to cut its lending rate this week, with the European Central Bank (ECB) arguing it had made progress in tackling inflation. The ECB’s main interest rate was cut from an all-time high of 4% to 3.75%. The EU’s move followed Canada's decision to cut its official lending rate earlier in the week. The ECB's move comes as voters head to the polls for EU-wide elections over the next four days, with the outcome expected to reflect people's unhappiness over cost-of-living pressures. Central bank president Christine Lagarde said the outlook for inflation had improved "markedly". However, she warned that inflation was likely to remain above the bank’s 2% target “well into next year”, averaging 2.5% in 2024 and 2.2% in 2025.

UK businesses’ wage expectations dropped in May to the lowest rate in two years, according to a closely watched survey that will be welcome news to policymakers at the Bank of England.

Quantitative easing boosted a general inflation.

Activity in the US services sector improved noticeably during May. The Institute for Supply Management's purchasing managers' index improved from a reading of 49.4 in April to a nine-month high of 53.8 in the month just ended. Economists had pencilled in an improvement to 50.8. The volatility was surprising but an average of May and April, which would give 56.1 versus 57.4 in March and 57.2 in February is consistent with firm, but modestly slowing services activity.

The number of US job vacancies reached the lowest level since February 2021, with 8.1 million job openings reported in the latest sign of a cooling labour market. According to the Bureau of Labor Statistics' latest Job Openings and Labor Turnover Survey (JOLTS) report. This is likely to please the Fed and increase expectations of the pace of rate cuts this year.

Quantitative easing boosted a general inflation. Most central banks want their holdings of bonds to come down – but governments need to borrow more at higher rates. Rising government debt and bond markets.

Geopolitics

The UK election campaign continued, with Rishi Sunak and Sir Keir Starmer appearing in the first TV debate of the general election. The Conservative and Labour leaders had heated exchanges over tax, the NHS and immigration.

Indian Prime Minister Narendra Modi won crucial backing from two key allies in his coalition, allowing him to form a government and extend his decade in power. His Bharatiya Janata Party (BJP) was forced into coalition talks after a surprise loss of its outright majority in parliamentary elections. Leaders of the National Democratic Alliance (NDA) met in New Delhi to work out an agreement. Mr Modi was “unanimously elected as the leader of the NDA,” the BJP said. Indian shares fell the most in four years when markets realised Mr Modi may not get a majority.

Ray Dalio, billionaire investor and founder of Bridgewater Associates, said the world is entering a period of greater risks on the back of enormous debt creation, unprecedented internal conflicts in developed countries and great power clashes.

Boeing’s outgoing chief executive warned that a US turn toward isolation would hamper exports and damage the economy. “We’re a company that relies on trade,” Dave Calhoun said. “I’ll be the first to acknowledge that that seems to be going in the wrong direction and has been for quite some time.”

As our clients and employees consider how to exercise their votes in the UK election on July 4, we look at the impact elections elsewhere are having. Major elections and markets.

Companies

Rising global conflict means countries will spend the next 10 years restocking arms, the chief executive of weapons manufacturer Chemring said. A key supplier to Nato, Michael Ord said countries are reacting to the wars in Gaza and Ukraine as well as “an increasingly assertive China”. The group wants sales to quadruple to nearly £1bn by 2030 from current record levels.

The chief executives of Nvidia and Advanced Micro Devices showcased new chips that power the boom in AI development. Jensen Huang and Lisa Su — both born in Taiwan and now local celebrities — made their case during back-to-back shows at the world’s largest computing conference this week in Taipei.

Shares of Taiwan Semiconductor Manufacturing Company, the world’s biggest chip foundry, hit an all-time high on Thursday, boosted by a surge in Nvidia’s share price.

Shein, the controversial Chinese fast-fashion giant, may sell shares on the London Stock Exchange. Reports suggested the group could file the relevant paperwork imminently. Shein offers a huge range of cheap clothes – making an impact through social-media campaigns and by using influencers – and has proved an incredible success. However, it faces criticism over its environmental practices, as well as allegations around the use of forced labour in its supply chain. UK fund managers warned that investors will “struggle to support” the potential blockbuster flotation over concerns about its alleged treatment of workers.

The proposed merger between Nationwide and Virgin Money is to be investigated by the UK's competition watchdog. The country's biggest building society announced the £2.9bn deal with its smaller rival in March. It is the largest banking merger since the 2008 financial crisis and will create the UK’s second-largest provider of mortgages and savings.

Hewlett Packard Enterprise shares surged as much as 16% in premarket trading after the company reported revenue that beat analysts’ estimates. This was due to a big jump in sales of servers built to handle artificial intelligence work.

SpaceX’s giant Starship rocket completed its fourth test mission successfully, travelling at five times the speed of sound to reach space and return to Earth in a controlled re-entry.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

The rally gets another leg up

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