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US equities hit new highs

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 17 May 2024.

| 7 min read

Data released this week raised hopes that the US central bank will be able to start cutting interest rates from September. After a series of hotter-than-expected inflation readings since the start of the year, US consumer price index (CPI) data did not surprise on upside. Weak retail sales also suggested that the US consumer was running out of steam, which would also be welcome at the Federal Reserve. The Dow Jones Industrial Average, S&P 500, the Nasdaq Composite all hit record highs. Oil prices rose for the first time in three weeks on hopes of an increase in demand.

Over the week, the blue-chip FTSE 100 index was down 0.2% by mid-session on Thursday, with the more UK-focused FTSE 250 trading 0.5% ahead.

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Economics

US inflation data for April was taken positively by markets as it resumed a downward trend in the second quarter. Alongside weaker retail sales data, this raised hopes the Federal Reserve may deliver an interest rate cut as early as September. The data propelled US indices to new records. The core consumer price index (CPI) — which excludes food and energy costs — climbed 0.3% from March, snapping a streak of three above-forecast readings which raised concerns that inflation was becoming entrenched. The annual measure cooled to the slowest pace in three years.

UK wage data has given the hawks on the Bank of England’s Monetary Policy Committee (MPC) another reason to keep interest rates on hold for longer this year. Growth in average weekly wages, including bonuses, was 5.7% in the three months to March, higher than market expectations of 5.5%. Although the jobs market is softening, the failure to see a slowdown in wage growth will be a concern. At its last meeting the nine members of MPC were split on the decision to hold interest rates, with two members voting for an immediate cut to 5%. This was an increase from one member seeking a reduction at its prior meeting. Governor Andrew Bailey said a cut was “possible” at its meeting in June, but this wage data is likely to strengthen the hawks’ hands as they argue that more evidence is needed that price pressures are easing before interest rates are cut.

US President Joe Biden has approved substantial rises in tariffs for electric vehicles and other green and medical products from China.

Beijing announced its most significant steps yet to address the crisis in the country's property sector. New measures include cutting the amount home buyers need for a deposit and encouraging local authorities to purchase unsold properties. Figures released earlier on Friday showed new home prices had fallen for a tenth month in a row in April. The 0.6% month-on-month decline was the sharpest drop since November 2014.

China's factory output topped forecasts in April, helped by improving exports, although retail sales unexpectedly slowed. A mixed set of data indicated a patchy recovery in the world's second-largest economy, with trade and consumer prices perking up but credit growth mired by weak consumer confidence.

Geopolitics

US President Joe Biden has approved substantial rises in tariffs for electric vehicles and other green and medical products from China after a review of Trump-era tariffs. Biden does the full Trump on China tariffs.

Large gaps have opened in the costs of energy to business in different parts of the world. This has left industry in some regions at a disadvantage. Energy costs and industrial competitiveness.

Xi Jinping rolled out the red carpet for Vladimir Putin as China and Russia seek ways round US tariffs and bans. President Xi welcomes President Putin.

Company news

Miner Anglo American detailed a wide-ranging strategic shift designed to fend off the approach made for the group by rival BHP. Anglo rejected a second BHP bid on Monday and has now set out plans to sell or demerge various assets, including the De Beers diamond arm. It would leave the group focused on copper and iron ore. Copper was the main draw of BHP’s interest in the first place as the metal expected to see strong demand during the energy transition.

Prices for good quality commercial property in the UK have “bottomed out” after two years of sharp declines, according to Land Securities. Falls were driven by rising interest rates and its portfolio dropped in value by £625m, or 6%, in the year to March. The decline was less severe than the 7.7% drop the year before.

International Distribution Services, the owner of Royal Mail, is “minded to recommend” an improved takeover bid worth about £3.5bn from shareholder and Czech billionaire Daniel Kretinsky. A revised proposal of 370p a share has been received from Mr Kretinsky's EP Group, an improvement on the initial 320p-a-share cash bid made in April.

BT Group shares rose, despite a 31% drop in annual profits, as it detailed plans to save £3bn a year by the end of the decade and raised its dividend. New chief executive Allison Kirkby said the telecoms company had "now reached the inflection point on our long-term strategy".

OpenAI struck a deal with Reddit to use content from its platform for its artificial intelligence chatbot, sending shares in the social-media company higher.

Shares in Sage Group slumped despite posting solid first-half results, after it reduced its annual revenue guidance. Management told investors it now expects organic total revenue growth for the 2024 financial year to be broadly in line with the 9% growth seen in the first half, with analysts expecting a slightly higher figure.

GSK sold its remaining 4.2% stake in consumer health business Haleon, which it spun off in July 2022, for £1.25bn. GSK initially retained a 12.9% stake in Haleon, but had since sold stakes in May 2023, October 2023 and January 2024.

British Airways owner IAG said it was "well positioned" for the summer after posting a leap in first-quarter operating profit following strong leisure travel demand, especially over the Easter holidays. IAG also owns Aer Lingus, Iberia and Vueling.

Shares in airline easyJet fell after it revealed chief executive Johan Lundgren was to step down next year after more than seven years in the role. He will be replaced by current chief financial officer Kenton Jarvis. The short-haul carrier posted a fall in first-half losses.

Greggs revealed it now has 2,500 operating outlets and management is confident that it will open a net 140 to 160 stores in the full year. Over the last few years, the baker has repositioned the company as a ‘food-to-go’ chain rather than a than a take-home bakery. This means it is competing against business such as Costa Coffee rather that supermarkets such as Tesco and J Sainsbury.

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US equities hit new highs

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