MFS Week in Review
A review of the week's top global economic and capital markets news.
A review of the week's top global economic and capital markets news.
For the week ending 19 April 2024
As of midday Friday, global equities were lower on the week amid heightened geopolitical tensions. The yield on the U.S. 10-year note rose 12 basis points to 4.63% from a week ago while the price of a barrel of West Texas Intermediate crude oil fell from 85.45 last Friday to 83.08. Volatility, as measured by the Cboe Volatility Index (VIX), rose to 18.7 from 17.3.
MACRO NEWS
China’s economic growth beats expectations, but signs of weakness remain
China’s economy grew 5.3% in the first quarter, beating expectations. The strong growth was primarily contained in the first two months; however, while in line with the government’s 5% target, several other indicators point to concerns about future economic activity. Factory output in March grew 4.5% year over year, compared to 7% the prior month, while retail sales rose 3.1% versus 5.5% in February. The property sector remains a major headwind, with sustained operational difficulties, liquidity pressures and low consumer confidence. Property investment fell 9.5% year over year and new home prices fell at the fastest pace in eight years to 2.2% year over year. The Hang Seng Mainland Property Index slumped 19% year to date, 50% from a year ago. The property crisis, combined with rising government local debt and weakening consumer spending, pose a challenge for economic momentum. Despite growing signs of weakness, the People’s Bank of China decided to hold rates steady at 2.5% amid concerns over currency stability.
Mideast tensions remain elevated
In a move against Israel for the air strike on its Damascus consulate last week, Iran launched drones and missiles toward Israel on Saturday, the first time Iran has directly attacked Israel from its own territory. The majority of the missiles were intercepted by Israeli, American and other allied forces, minimizing damage. Over the years, Iran has built out diplomatic ties with American rivals and enhanced its military capabilities. The attack marks a strategic shift, ending the “shadow war” that Iran and Israel have been engaged in for decades. In response, the U.S. announced sanctions against Iran’s steel and drone companies. Additionally, Israel retaliated Thursday night with a strike in central Iran where nuclear facilities and an air base are located. The extent of the impact is currently unclear, but the strike appears to be limited, with minimal damage. Oil prices have fallen more than 3% this week and heightened geopolitical risks in Israel prompted S&P Global Ratings to lower Israel’s long-term foreign and local currency sovereign credit ratings from AA- to A+.
Inflation on the right track across several regions
Canada’s prices ticked up slightly in March to 2.9% from a year earlier due to higher gasoline prices, but have steadily been slowing. The Bank of Canada expects inflation to subside to its 2% target next year, and is slated to cut rates in June. The European Central Bank is also expected to cut rates in June as prices further slow to 2.4% year over year. Similarly, the U.K.’s inflation print came in at a slower pace of 3.2% year over year. The probability the Bank of England will cut rates in the summer increased as labour markets cooled, with unemployment rising to 4.2% and wages slowing to 6% in March. Meanwhile, Japan’s core inflation, which excludes fresh food and energy, and is the Bank of Japan’s key measure, fell to 2.9%, but remains above the 2% target.
QUICK HITS
EARNINGS NEWS
With just 14% of the constituents of the S&P 500 Index having reported for Q1 2024, blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings slightly rose around 0.2% compared with the same quarter a year ago, according to data from FactSet. Sales growth is up 3.6% year over year.
Past performance is no guarantee of future results.
Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
This commentary was first published in the United States by MFS and is distributed in Canada by SLGI Asset Management Inc., with permission.
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