Written by Ilaria Massei

Last week was generally positive for Fixed Income and Equities in the US, with the Bloomberg U.S. Treasury 20+ Years Index delivering +3.4%, while the tech-heavy NASDAQ 100 Index returned +3.5%, in US dollar terms. This was partly due to the annual inflation rate, released last Wednesday, which surprised on the downside at 3.3%, raising hopes of an imminent interest rate cut from the Federal Reserve (Fed). The annual core inflation rate, which excludes food and energy prices, also surprised on the downside, easing to 3.4%. Although the Fed maintained the interest rate unchanged at this June’s meeting, comments from Fed President Jerome Powell have reiterated that a first cut in September remains possible, should data over the summer continue to moderate. However, the dot plot graphic, which presents Fed officials’ expectations for interest rates, has shown that expectations have shifted from three rate cuts this year to just one.

In both Europe and the UK, electoral turmoil has been a drag last week on Equities with the MSCI Europe Ex-UK falling by -3.5% and the FTSE All Share returning -1.3%, in GBP terms. Last weekend’s EU elections signalled a shift in preferences towards right-wing parties, and a major political shock came from French President Emmanuel Macron, who decided to call a snap election three years earlier than expected, following his party’s defeat by Le Pen’s National Rally.  This gamble was not well received by markets and French equities endured a particularly tough week.

In China, the annual inflation rate released last Wednesday came in below expectations at 0.3%, slightly below forecasts and the annual Producer Price Index, a leading indicator of inflation, printed at -1.4%. These numbers reiterate that consumer confidence is still weak and slow to recover, despite numerous measures from Beijing to support the economy and markets over the past year. The government has sent a clear signal of its aim to stabilise and support the property sector, a significant component of China’s economy. However, such initiatives can be challenging to implement and will likely take time to materialise.

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th June 2024. 

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