Indices 

The week concluded with a mixed performance in the major stock indices, as the influx of first-quarter earnings reports drew to a close. The Nasdaq Composite, which is heavily focused on technology, stood out with strong gains, primarily driven by the surge in Alphabet, the parent company of Google, following the announcement of its new AI-based search platform. In contrast, the pan-European STOXX Europe 600 Index remained relatively unchanged in local currency terms, as earlier gains faded away when the market absorbed the likelihood of further interest rate hikes by the European Central Bank (ECB). The performance of major stock indexes was a mixed bag, with Germany’s DAX easing by 0.30% and the UK’s FTSE 100 Index slipping by 0.31%.

Forex

On Friday, the dollar index strengthened, surpassing the 102.5 mark, and was poised for a weekly gain of over 1%, marking its largest increase since February. The strengthening of the dollar was driven by concerns surrounding the US debt ceiling and regional banking stress, leading investors to seek the safety of the currency. Furthermore, there is speculation that the Federal Reserve may need to maintain higher interest rates for an extended period, prompted by remarks made by Fed Governor Michelle Bowman suggesting the possibility of further rate hikes if inflation persists. In addition, apprehensions about the US debt ceiling and fears of a potential recession in the US fueled demand for the safe-haven Japanese yen. On the domestic front, a summary of opinions from the Bank of Japan’s April meeting revealed that members discussed the country’s progress in achieving its inflation target. They noted a positive trend of increasing wages and prices, indicating a favourable cycle.

Macro

UK:
The Bank of England (BoE) made the decision to raise its key interest rate by 0.25 percentage points to 4.50%, resulting in the highest borrowing costs since 2008. The central bank also revised its inflation forecast, acknowledging that it had underestimated the strength and durability of food price increases. The updated projections now anticipate inflation to slow down to 5.1% by the end of the year, as opposed to the 3.9% forecasted in February. Additionally, the BoE adjusted its economic growth forecast, predicting zero growth in the second quarter instead of a previously expected contraction of 0.7%.

Official data revealed that the UK economy experienced modest growth of 0.1% in the first quarter, avoiding a predicted recession. However, in March, gross domestic product unexpectedly declined by 0.3% on a sequential basis, with notable decreases observed across the services sector, as reported by the statistics office.

EU:
Regarding the European Union (EU), ECB President Christine Lagarde stated in an interview with the Nikkei newspaper that the central bank had taken deliberate and decisive actions to combat inflation but emphasised the need for further progress. She highlighted the existence of factors that could pose significant upward risks to the inflation outlook, and the need for vigilance in addressing these potential risks due to the high uncertainty surrounding inflation trends.

US:
In the United States, the economic calendar for the week was relatively light, but it included the release of highly anticipated inflation data. The S&P 500 Index experienced a 1% surge in premarket trading on Wednesday following the Labor Department’s report, which showed a year-on-year increase in headline consumer prices of 4.9% in April. This figure slightly missed consensus expectations and represented the slowest pace in two years. Additionally, the Fed’s preferred price indicator, the Personal Consumption Expenditures (PCE) Index, grew by 4.2% in March.

Economists surveyed by US media had initially anticipated job growth of approximately 180,000 for April, based on the previously reported figure of 263,000 for March. However, the Labor Department revised the March figure down to 165,000. Fed officials have expressed the view that employment and wage growth need to significantly slow down in order to effectively curb the high inflation levels observed in the United States, the most severe in four decades.