ECB hints at more rate increases
Market Summary
Last week, the US and Asian markets closed mixed on Friday. Gains were driven by strong earnings from a number of companies but were offset by concerns about the war in Ukraine, rising inflation and a credit default by the US Government.
U.S. stock indexes ended mixed last week with concerns over regional banks. Inflation data showed consumer prices rose 4.9%, the slowest pace in two years. With the US government projected to reach the debt ceiling on June 1, fear of a default wrought investors. In Europe, shares were mixed given the European Central Bank’s (ECB) announcement of raising interest rates in June or September. Economy grew by 0.2% in the first quarter of 2023, below expectations of 0.3%. The slowdown in growth was driven by the war in Ukraine and rising energy prices.
In Asia, Japanese stock markets rose due to strong corporate earnings, despite concerns about China's growth and the U.S. debt ceiling. The Bank of Japan hinted at policy changes once sustainable 2% inflation is achieved. Meanwhile, Chinese equities fell as the country's recovery appears to weaken, prompting speculations of potential monetary policy easing.
Major News
US inflation eased to 4.9% in April, as the Fed's interest rate increases brought prices under control.
Worries of a credit default in the US remain high given the lack of common ground between President Joe Biden and Congressional leaders in raising the debt ceiling. The US government is projected to reach the debt ceiling on June 1.
The Bank of England raised interest rates by 0.25% to 4.5% on Thursday and admitted it underestimated the stickiness of inflation.
Japan's consumer spending fell unexpectedly in March at the fastest rate in a year due to inflation, while real wages marked a twelfth month of decline.
What Caught Our Attention
China's economic recovery from COVID-19 is overshadowed by concerns about long-term growth. A declining population, a cooling housing market, and increased regulatory actions against tech companies raise doubts about future prospects. Experts hold different views on China's economic trajectory, with some predicting its GDP to surpass that of the US by 2029, while others believe its influence may be peaking.
Forecasts are influenced by factors such as population trends, productivity rates, and currency values. The advent of "generative" AI brings notable technological advancements, but its economic impact is intricate. Studies suggest varying outcomes, including significant GDP growth or more modest effects. Financial markets remain skeptical about an immediate AI-induced economic boom, as history shows that technological breakthroughs rarely bring instant transformations.
Source: Kredens Capital, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia
