On Monday, while UK markets remained closed in observance of the Early May bank holiday, European and US markets operated as usual.
Chinese stocks demonstrated robust performance on Monday as trading resumed after the Labour Day holidays observed from Wednesday through Friday of the previous week. Chinese President Xi Jinping embarked on his first visit to Europe in nearly five years, driven by a desire to avert trade conflict with the European Union(EU). He seeks to capitalise on the receptive stance towards Beijing by French Prime Minister Macron, intending to assuage mounting EU concerns regarding China’s perceived unfair trade practices and its alignment with Russia’s actions in Ukraine.
China saw a resurgence in both exports and imports during April, bouncing back from a downturn from the previous month, indicating a positive uptick in both domestic and international demand amidst Beijing’s efforts to stabilize its economy amidst various challenges. The data strongly suggests that recent policy measures have likely played a role in boosting both investor and consumer confidence.
On Wednesday, the FTSE 100 soared to yet another all-time high, propelled by positive corporate earnings and the pound’s decline against the dollar, influenced by expectations of a cautious approach from the Bank of England in today’s monetary policy meeting. The UK’s inflation rate for March dropped to 3.2%, marking its lowest point since September 2021, prompting market participants to eagerly await indications that rate cuts may be on the horizon, and particularly given Sweden’s Riksbank recent rate reduction. As previously underscored, we do not foresee rates dropping to previous lows, as the path of interest rates is dictated by the central bank’s data-driven approach. Despite persistent speculations of rate cuts, policymakers are unlikely to alter rates from the current 5.25%. Investors will keenly scrutinise Governor Andrew Bailey’s remarks for any indications of potential rate cut this year, particularly whether there will be increased support for a cut, especially after only one member voted in favour of a cut at the last meeting.
Data wise UK retail sales faced a setback, declining by 4% year-on-year in April, attributed in part to adverse weather conditions and the early Easter bank holiday.
In March 2024, retail sales in the Euro Area surged by 0.8% compared to the previous month, recovering from a revised decline of 0.3% and surpassing market forecasts of a 0.6% increase. Investors also continued to digest a slew of earnings this week, the Swiss banking giant UBS exceeded expectations, returning to profit after two consecutive losses.
Still to come this week are preliminary UK Q1 GDP, manufacturing, and industrial production data. Over the weekend, Chinese inflation data and PPI will be released.
Kate Mimnagh, Portfolio Economist
