Mixed picture from macro data
- Thursday’s GDP data brought two surprises • A weaker Q1 GDP reading, at 1.6%, was well below the 2.5% expected
- The related inflation measure, at +3.7% for the quarter, was well above expectations
- This suggests a less favourable combination of lower growth and higher inflation
- On the inflation front, the PCE* -the Federal Reserve’s favourite indicator- was higher than expected at 2.8% even after stripping the notoriously volatile food and energy
- Markets are now expecting 1.5 rate cuts by the Fed, meaning one cut for certain and one with 50% probability
- • However hints of rate hikes appear far-fetched
I wish I could, but I can't
- As expected, the US Federal Reserve left rates unchanged
- However, a reference to the “lack of further progress towards the 2% inflation target” was added
- Suggestions of rate hikes are dismissed… • … as are hints of stagflation, what with good growth, a strong labour market and inflation around 3%? • Questions around the timing of cuts vis-à-vis the November elections are also skirted
- The week’s data paints a blurred picture: one inflation measure (PCE*) was a bit above expectations, some labour market numbers -job openings, labour mobility- showed some signs of cooling, and consumer confidence was pretty low.
- • Good Pavlovian response from bonds and equities
A tale of two stock
Magnificent 7 again in the headlines:
- Tesla reports disappoints on both sales and revenues (-4.5% and -13.5%) but markets buy into Musk’s narrative of a low cost model and robotaxis; and, a deal with China further rekindles investors’ enthusiasm
- Meta reports beats on both metrics, but markets are spooked by Zuckerberg’s AI investments plan • Away from the limelight, the US reporting season is shaping up rather well:
- 309 companies have reported so far:
- 53.7% have surprised on sales by a bit (1. 2%)
- 79.6% have surprised on revenues by some (9.5%)
- Alphabet and Microsoft did quite well. Today, Apple
Europe - Speeding out of recession
Eurozone exited recession, with top four economies posting speedier growth than expected – Inflation on the other hand confirms its stickiness
- Eurozone Q1 GDP increased 0.3% compared to Q4 2023– strongest pace in 1 ½ years
- Eurozone April Core CPI* 2.7%, moderating from 2.9% in March but still above expectations
- Service inflation in April remains high but moderating to 3.7% after staying at 4.0% for the past five months
- Market pricing in two quarter point reductions for 2024 and a 76% chance for a third cut – the data adds likelihood that ECB will hold borrowing costs steady in July
Swiss equities are lagging - why?
Swiss equities lagged behind the European Equity markets this year, although the Swiss National Bank was the first central bank to cut interest rates in a bold move • There are many reasons for the underperformance within Europe, but the high weightings of Nestlé, Novartis and Roche within the Swiss indices are one of the most important
- Nestlé, Roche and to some extent Novartis are currently not in favour among international investors, although they have also parked their money in defensive sectors in the meantime. All three have underperformed within their sectors, especially Roche and Nestlé
- Another reason is the weakness of the European industrial sector, an important market for Swiss industrial stocks
- Yet, due the excellent global positioning of many blue chips and the SNB’s readiness to intervene, Swiss Equities should remain quite attractive in the medium term
Olympic Games and Football EM
Europe is hosting two major sporting events in 2024: The Euro 2024 football tournament and the Summer Olympic Games. The combination of both events in one year is indeed unusual
- A limited and possibly non-existent impact on macroeconomics but clearly more direct sector and microeconomic impact
- Winners are the tourism flows associated with these events lead to a significant consumption surplus and therefore an opportunity to generate revenues
- Sectors benefiting from these events: media, hospitality, leisure, restaurants, beverages, spirits, consumer goods, real estate and transport
- Sustainable sourcing, waste management and human capital are the main ESG challenges for the businesses in these sectors that are exposed to these events
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