Technology earnings prop up the US market.
This week investors turned their attention to first quarter earnings of some of the world’s largest companies. Upbeat results from Microsoft, Alphabet and Meta helped the US market break even, despite initial fears over the health of the US Regional Banking sector.
Earlier in the week, stocks retreated after First Republic bank revealed that customers had withdrawn $100bn of deposits in last month’s turmoil. In turn the share price of the bank fell just under 50% on the day, having already fallen by 90% since its peak this year. The news dragged down the wider index, whilst the broader KBW Regional Banking Index fell 3.9%.
Big technology names, however, helped lift sentiment somewhat on Thursday. Meta shares soared 14.4% after the Facebook owner forecast quarterly revenues above estimates. Meanwhile Microsoft’s cloud division climbed 16% in the first three months of 2023, a faster than expected rate, and Google’s advertising business also returned to growth with revenue rising 2% over the quarter.
As of 12pm London time, the US market finished broadly flat, returning 0.04%, helped by the technology index which fared better, delivering 0.58% over the week. Europe and Asia struggled with the UK index falling 1.35% and the European index declining 1.42%. This came amidst stubborn inflation data and a weaker than expected rebound in Eurozone GDP. In Asia, the Hong Kong index returned minus 0.90% whilst Japan was a standout in the region, rising 1.1% after their monetary policy was left unchanged.
Mixed economic data weighs on investor sentiment.
Looking at broader economic data releases, US Q1 GDP growth disappointed, with a rise of 1.1% on an annualised basis, well below expectations of a 2% increase. This is a fall from last quarter’s annualised growth of 2.6%, perhaps suggesting the rise in interest rates are beginning to take effect on the economy. Data in the Eurozone was also mixed, with GDP for the region rising 1.3% in the first quarter, slightly below expectations of 1.4%. Inflation figures in France also surprised, with consumer prices rising by 6.9% year on year from last month’s 6.7% figure.
Bank of Japan announces monetary policy review.
The Bank of Japan’s new governor, Kazuo Ueda, held his policy meeting with the central bank choosing to keep its benchmark interest rate unchanged at -0.1%. The central bank also kept its tolerance range for the 10-year Japanese government bond yield at 50bps above 0%. That said, the new governor has left room for policy changes in the coming months after forecasting inflation to remain close to its 2% target in the next two years. The yen weakened to its lowest point in six weeks, falling as much as 1.1% to ¥135.45 against the dollar on Friday, as investors anticipate a continued dovish stance under Ueda.
Core government bonds rally, whilst commodities drop on weaker economic data.
After the weaker economic data releases throughout the week, safe haven core government bonds rallied, with the US 10-year Treasury yield (which moves inversely to its price) falling 9 basis points to trade at 3.47% as of 12pm London time. 10-year equivalent German bunds also rallied with the yield falling 9 basis points to 2.38%. UK gilt yields were unchanged over the week. In contrast, brent crude oil prices fell even after a decline in US Crude inventories. The price dropped 3.38% over the period, trading at $78 a barrel. Other industrial commodities also declined with copper and iron ore prices both falling by 2.38% and 2.99% respectively.