Markets Update: Markets React to Inflation Data

During the holiday-shortened week, the major US equity indices closed lower. The
release of the Personal Consumption Expenditures Price Index (PCE), which is the Federal Reserve’s preferred gauge for tracking inflation, showed little change compared to previous months, writes Ian Slattery.

Ian Slattery, Zurich Investments

The PCE index rose by 2.7% in April, unchanged from March. The Core PCE, which excludes volatile food and energy prices, remained at 2.8% for the third consecutive month.

Surprisingly, US Consumer Confidence improved in May after declining for the past three months.

The index rose to 102.0 from an upwardly revised 97.5 in April, reflecting more positive views about business conditions.

In Europe, major stock indices also experienced declines as eurozone inflation, measured by the Harmonized Index of Consumer Prices (HICP), increased above expectations. Annual inflation in May reached 2.6%, up from 2.4% in April, slightly above the anticipated 2.5%. Core inflation rose to 2.9% from the previous month’s 2.7%, ending a nine-month period of disinflation. Notably, annual energy inflation turned positive for the first time since April 2023.

These developments added some uncertainty to the potential easing of policies by the ECB before their upcoming meeting, however consensus expectations remain positive on a 25-basis point cut.

In Germany, annual inflation matched forecasts at 2.4% in April, while the core rate remained at
3.0%. Consumer sentiment in Germany improved to a level not seen in over two years, indicating a
positive outlook for the country’s economy. German bond yields remained relatively stable following these releases.

Equities

Global stocks were down last week by -0.5% in euro terms and -0.4% in local terms. Year-to-date global markets are up by 11.6% in euro terms and by 9.8% in local terms. The US market, the largest in the world, finished at -0.6% in euro terms and -0.5% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.4% last week. The German equivalent finished at 2.6%. The Irish 10-year bond yield finished at 3.0%. The Euro/US Dollar exchange rate finished at 1.09, whilst Euro/GBP finished at 0.85.

Commodities

Oil finished the week at $74 per barrel and is up 4.9% year-to-date in euro terms. Gold finished the week at $2,351 per troy ounce and is up 15.4% year-to date in euro terms. Copper finished the week at $10,017 per tonne.

The Week Ahead:

Wednesday 5th June

Eurozone PMI data is released.

Thursday 6th June

ECB announce interest rate decision.

Friday 7th June

US nonfarm payrolls go to print.