Written by Chris Ayton.
Global equity markets trod water last week, with the MSCI All Country World Index ending the week down -0.2% in Sterling terms. MSCI Europe ex-UK fell -1.1%, with the FTSE All Share Index and the S&P 500 Index both dropping -0.4% but MSCI Emerging Markets was up +1.1% boosted by positive returns in China and Brazil. After years of neglect and disinterest, corporate governance improvements are leading international investors to revisit their allocations to Japanese equities and this helped MSCI Japan rise +1.5% for the week. However, the Japanese Yen remained weak ahead of the Bank of Japan meeting this week where, unlike all other major economies, it is expected to maintain its ultra-loose monetary policy. The Federal Reserve and the European Central Bank (ECB) also meet this week.
Last week the Organisation for Economic Co-Operation and Development (OECD) released its latest GDP growth forecasts for 2023 and 2024, predicting the global economy would expand by 2.7% in 2023 and 2.9% in 2024. Underlying that, it went on to predict the US will avoid recession, India will grow strongly (6% this year, 7% next year), and China will achieve its target of 5% GDP growth this year and next. However, it estimated the UK will only achieve 0.3% growth this year and 1% next year, although this is better than previous estimates. While this backdrop is certainly interesting, it is important to remember that economic growth does not equate to stock market returns.
In Europe, the EU’s statistics agency revised down the EU’s GDP growth to -0.1% for both the final quarter of 2022 and first quarter of 2023, meaning the Eurozone is technically already in a recession. This surprising news came on the back of Germany also announcing that it had fallen into recession. This data has brought into question the European Commission’s 1.1% growth forecast for 2023 and it will be interesting to see if the ECB starts to face any pressure to ease up on further interest rate rises at their upcoming meeting.
Data released by Halifax last week showed UK house prices registering their first annual decline since 2012, with average house prices in May sitting 1% below where they were this time last year. The Nationwide Building Society had earlier indicated an even greater annual decline. With Uswitch reporting the average 5-year fixed rate mortgage rate in the UK has now hit 5.59% and further interest rate rises expected going forward, this is clearly starting to impact price expectations for buyers and sellers.