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U.S. stock markets ended the week mixed, with the Dow Jones Industrial Average recording its biggest weekly loss since early April, down 2,33%, while the NASDAQ Composite continued to march higher into record territory. The yield on the benchmark US 10-year Treasury Note rose 5 basis point to 4,47%.

The latest minutes from the Federal Open Market Committee (FOMC) reveal that Federal Reserve officials are inclined to maintain higher interest rates for an extended period. During the two-day meeting that ended on May 1st, many officials expressed doubts about whether current policies were sufficiently restrictive to reduce inflation to their target. While participants generally agreed that policy was “well positioned,” several officials indicated a readiness to tighten policy further if necessary.

Recent US data indicates that business activity is rising at the fastest pace in two years, fuelling expectations that the Federal Reserve will maintain higher interest rates for an extended period. Growth in the service sector reached its highest level in a year, while manufacturing unexpectedly expanded, according to S&P Global data. The composite PMI climbed to 54.4, significantly above the expected 51.2 for May. Combined with recent hawkish comments from the Federal Reserve, this data reinforces the likelihood of a sustained tight monetary policy.

Nvidia reported another impressive quarterly earnings, reinforcing its central role in the artificial intelligence (AI) boom. The chipmaker’s strong sales forecast indicates robust ongoing spending in AI computing. Nvidia expects second-quarter revenue to reach approximately $28 billion, surpassing analysts’ predictions of $26.8 billion. The earnings report, which did not disappoint, highlighted CEO Jensen Huang’s remarks about the dawn of a “new industrial revolution.” Following the results, Nvidia’s share rose 9.3% on Thursday, adding roughly $220bn to its market capitalisation, reflecting the market’s positive reception to the company’s performance and outlook. Company management also announced a 10-for-1 stock split and increased its dividend by 150%.

The S&P 500 ended the week flat, up 0,03%., while the tech heavy NASDAQ composite continued it’s positive YTD performance, closing the week up 1,41% (12,72% YTD).

In the UK, unexpectedly strong inflation data has led traders to significantly reduce their expectations for interest rate cuts, undermining a potential economic triumph for Prime Minister Rishi Sunak. The Office for National Statistics reported on Wednesday that the Consumer Prices Index (CPI) rose by 2.3% year-on-year in April, surpassing the 2.1% forecast by economists. While this brings the Bank of England’s (BoE) 2% inflation target within reach and represents the lowest inflation level since the onset of the cost-of-living crisis nearly three years ago, it remains at the higher end of economists’ expectations. On Wednesday, Rishi Sunak unexpectedly requested King Charles III to dissolve parliament and call a general election in the UK on 4 July. Sunak isn’t required to hold an election until January, his Conservative Party is lagging in opinion polls, while Labour Party leader Keir Starmer gathers momentum.  The FTSE 100 closed the week in negative territory, down 1.22%.

European Central Bank (ECB) President Christine Lagarde reiterated this week that an interest-rate cut is likely next month, as consumer-price growth appears to be under control. In a television interview with Ireland’s RTE One on Tuesday, Lagarde stated, “If the data that we receive reinforces the confidence level that we have — that we will deliver 2% inflation in the medium term, which is our objective, our mission, our duty — then there is a strong likelihood” of a rate cut on June 6. She expressed confidence in the ECB’s ability to manage inflation. First estimates of Eurozone composite purchasing managers’ index (PMI) for May came in at a 12-month high of 52.3, up from 51.7 in April. The Euro Stoxx 50 also closed lower, down 0.57%.

Japan’s stock markets finished the week lower, with the Nikkei 225 Index falling 0.36% and the broader TOPIX experiencing a marginal decline. Japan’s national new core CPI, which excludes fresh food and energy, slowed to +2.4% year-on-year in April, down from +2.9% in March, aligning with market expectations. This decrease mainly reflects the diminishing impact of the sharp rise in food prices (excluding fresh food) and a slowdown in the increase of hotel and lodging charges observed in April 2023. Japan’s 10-year government bond yield hit 1% for the first time in 11 years on Wednesday, off the back of moderating inflation.

China is considering imposing tariffs as high as 25% on imported cars with large engines, according to the China Chamber of Commerce to the EU. This potential move comes as trade tensions escalate between China, the US, and the European Union. The People’s Bank of China (PBOC) announced a historic rescue package for the ailing property sector, amid growing concerns of a severe housing crisis in China.  From a monetary policy perspective, the Chinese central bank kept their one- and five-year prime rates unchanged at 3.45% and 3.95%, respectively. Notwithstanding these positive local developments, Chinese stocks retreated this week as fears of elevated U.S. interest rates offset optimism about Beijing’s latest measures. Both the Shanghai Composite and Hong Kong’s Hang Seng Composite closed the week lower, down -2.07% and -5.11% respectively.

Market Moves of the Week:

With national elections imminent, political news has dominated headlines in South Africa this week. On Monday, the Constitutional Court ruled that former President Jacob Zuma is disqualified from standing in the elections due to his 15-month jail sentence for contempt of court in 2021. According to the Constitution, individuals sentenced to prison for 12 months or more cannot hold a parliamentary seat. While Zuma’s name will be removed from MK’s list of parliamentary candidates, his face will remain on the election ballot papers as he is the registered leader of the party.

Additionally, the African National Congress (ANC) has announced plans to finalise a comprehensive policy on universal basic income within two years if they return to power after the election. The ANC intends to use the Social Relief of Distress Grant as the basis for transitioning to a permanent basic income payment.

On the local equity front, the JSE ALSI ended the week in negative territory, down -0.48%, lead lower by the Resource sector down -1,54%. Industrials also ended lower, -0,67%, while Financials were marginally higher, up 0.31% for the week. The SA Listed Property sector also ended the week in positive territory, up 0.89%.

Chart of the Week:
Nvidia is now the third-largest company in the S&P 500 by market capitalisation, trailing only Apple & Microsoft. On a year-to-date basis, Nvidia has significantly outperformed the S&P 500 index, as displayed in the chart above. Bank of America noted that Nvidia had accounted for 37% of the S&P 500’s earnings-per-share gains over the previous 12 months, while Bloomberg reported that the stock had been responsible for 25% of the S&P’s 11.3% gain on a YTD basis. Source: Bank of America & Bloomberg.

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