Inflation appears to moderate in U.S.
United States
- Large-cap indexes move back to record highs: The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite climbed to record highs during the week, with the Dow crossing the 40,000 threshold for the first time. Growth stocks outperformed as inflation and interest rate worries appeared to dissipate.
- Inflation breaks streak of upside surprises: April's consumer price index (CPI) came in at or modestly below expectations. Headline prices rose 0.3%, while core prices rose 0.3%. Inflation remained concentrated in services prices, especially transportation services costs, which rose 0.9% over the month and 11.2% over the past year.
- Retail sales data: Retail sales were flat in April versus consensus estimates of a 0.4% gain. Sales at non-store retailers fell 1.2%, while sales at restaurants and bars continued to moderate.
- Long-term U.S. Treasury yields fall: The yield on the benchmark 10-year U.S. Treasury note fell to its lowest level in over a month. The tax-exempt municipal bond market absorbed another heavy week of new issuance, with strong demand for new deals.
- Investment-grade and high-yield bonds: Spreads initially widened in the investment-grade bond market before tightening later in the week. High-yield bonds benefited from the rate moves, with positive flows reported in below investment-grade funds.
Market Indexes Changes
- DJIA: 40,003.59 (+490.75, 6.14% YTD)
- S&P 500: 5,303.27 (+80.59, 11.18% YTD)
- Nasdaq Composite: 16,685.97 (+345.10, 11.16% YTD)
- S&P MidCap 400: 3,016.25 (+22.29, 8.44% YTD)
- Russell 2000: 2,095.72 (+35.94, 3.39% YTD)
Europe
- Stock index performance: The pan-European STOXX Europe 600 Index rose 0.42%. Germany’s DAX fell 0.36%, France’s CAC 40 Index declined 0.63%, Italy’s FTSE MIB advanced 2.14%, and the UK’s FTSE 100 Index finished modestly lower.
- UK pay growth: The annual rate of pay growth, excluding bonuses, was unchanged at 6% in the three months through March. The labor market appeared to slacken, with the main unemployment rate rising to 4.3%.
- ECB policymakers' stance: ECB policymakers indicated that a rate cut is likely in June, but the path thereafter is uncertain. Some members suggested that slower policy easing by the Federal Reserve could delay further moves.
- Eurozone industrial output: Industrial production rose for a second month, increasing 0.6% sequentially, driven by a jump in Ireland’s output.
Japan
- Equity performance: The Nikkei 225 Index gained 1.5%, and the broader TOPIX Index rose 0.6%.
- Economic growth: Japan's economy contracted by 2.0% annualized in the first quarter, driven by the negative impact of the January earthquake and suspension of some auto production activity.
- Yen range-bound: The yen finished the week broadly unchanged in the high-JPY 155 range against the USD.
- BoJ bond purchases: The yield on the 10-year JGB rose to 0.94%, with upward pressure exerted by hawkish signals from the BoJ.
China
- Equity performance: The Shanghai Composite Index was broadly flat, while the blue-chip CSI 300 added 0.32%. The benchmark Hang Seng Index gained 3.11%.
- Property sector rescue package: The People’s Bank of China (PBOC) lowered the minimum down payment ratio and scrapped the nationwide floor level of mortgage rates. The central bank also extended RMB 300 billion in low-cost funds for the purchase of unsold homes.
- Housing crisis: New home prices in China fell by 0.6% month on month in April, marking the 10th straight monthly decline.
- Inflation data: China’s consumer price index rose 0.3% in April, while the producer price index fell 2.5% from a year ago.
- Economic recovery: Industrial production rose 6.7% in April from a year earlier, while fixed-asset investment and retail sales increased less than expected. The urban unemployment rate fell to 5.0%.
Other Key Markets
- Hungary: The year-over-year inflation rate in April was 3.7%, with core inflation momentum slowing. Broader inflation dynamics could enable more central bank rate cuts in the coming months.
- Argentina: Inflation in April was measured at a month-over-month rate of 8.8% and a year-over-year rate of 289.4%. The central bank responded with a 10-percentage-point reduction in its key interest rate from 50% to 40%.
