Global stock markets had major fluctuations over the week as investors buoyed by the performance of large corporates followed by a dearth of policy rate changes by the U.S. Federal Reserve. Fed Chair Jerome Powell remains apprehensive of inflationary pressures in the economy and held interest rates steady, as the economy remains strong with strong job numbers expected to be announced at the end of the week. Apple and Alphabet announced major equity buybacks to the tune of $180 billion, causing equity markets to surge again. U.S. Strategic Petroleum Reserves (SPR) hit a 40 year low of 366 million barrels of crude oil reducing the buffer against energy inflation. Spreads on U.S. high yield bonds remained tight despite a pick-up in distress within the asset class, as investors see the majority of issuers weathering higher-for-longer interest rates. Political uncertainty gripped the country with pro-Palestine protests across major university campuses, leading to many arrests of student protestors. As a result, President Joe Biden’s popularity declined during the week, despite news of Donald Trump’s controversial plans if he is elected in November.

Global Updates
  • The MSCI All Country World Index remained largely unchanged during the week, as the positive effect of encouraging corporate earnings was largely offset by the Federal Reserve (Fed)’s decision to keep policy rates unchanged. Even though the markets have priced in one rate cut this year, it is not expected to happen until after the November elections. 
  • Pablo Hernandez de Cos, the Governor of the Bank of Spain, said the European Central Bank (ECB) is confident that eurozone inflation will fall to targeted 2% by 2025. In the euro region, inflation stagnated to 2.4%. ECB is considering multiple rate cuts this year as planned but if the U.S. Fed does not cut rates, the interest rate spreads, leading to a weak euro, imported inflation and higher long-term yield.
  • The OECD has forecasted a 3.1% growth rate for the global economy for 2024, as the U.S. and China are expecting a growth rate of 2.6% and 4.9% respectively, compensating for the sluggish growth of 0.7% in Europe and 1.1% in Japan.
  • Technology behemoths Microsoft and Meta declined in value despite announcing strong quarterly earnings, as their capital expenditure for AI dampened investor sentiment. Alphabet’s market capitalization surged with the announcement of its first dividend and a higher-than-expected Q1 earnings, followed by a $70 billion stock buyback. Tesla stock also surged in response to China permitting Tesla to roll out its self-driving technology. Apple also announced a record $110 billion share buyback plan during the week.
  • ING Group announced a $2.5 billion euro share buyback following strong first-quarter performance of 1.58 billion profits spiking shares up by 5%. European banks are benefiting from rising interest rates.
U.S. Equity
  • The S&P 500 Index had a reactive week. The index surged by 35 points in response to higher-than-expected corporate earnings early in the week, then declined by 95 points in response to Fed’s decision to keep rates unchanged; and finally, gained back 60 points towards the end of the week as investor confidence grew as April’s job numbers are expected to be around 243,000 and the rise of average earnings to be around 0.3%.
  • U.S. Fed Monetary Policy Meeting led to no concrete outcomes due to uncertainty in economic activity and inflation. Fed chair Jerome Powell announced investors could expect rate cuts later this year. 
  • U.S. Strategic Petroleum Reserves (SPR) hit a 40-year low of 366 million barrels of crude oil. The reserves have been used to supplement oil imports and maintain inflation.  The reserves will be critical as oil prices continue to rise amidst global geopolitical uncertainties. U.S. consumer confidence continued to drop for the 23rd month based on concerns of gas price inflation. 
  • Meta shares dipped 2.4% after continuous growth in Q1 2024 as a response to the European probe of Meta’s handling of disinformation under European Digital Services Act and the Oversight Board. 
  • Chubb issued its first tranche of $350 million insurance payments of the $1 billion plus damages for the Baltimore bridge collapse to Maryland. The final payout may still be contested by the insurers.
  • Canadian legislators have agreed to hold on the grant of exemptions for use of Russian titanium by major aerospace companies, even though the recent sanctions have input costs and supply chain blockages.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index remained sticky with minor fluctuations over the week, in response to the Fed’s continued tightening stance on monetary policy.  
  • The U.S. 10-year Treasury yield fell to 4.59% during the week. The yield on the 2-year Treasury fell to 4.88% . 
  • The U.S. Dollar Index marginally fell by 1% during the week.
Sources

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