Inflation rises in Europe for the first time in five months. U.S. growth shares lead stocks lower, while weak Treasury auctions raise concerns. Japan sees mixed stock market returns, and China's manufacturing sector slips back into contraction. Poland and South Africa face inflation and interest rate challenges.
United States
Growth shares lead stocks lower:
- Major benchmarks closed lower over the holiday-shortened week but rounded out a month of gains.
- Small-caps performed better than large-caps, and value stocks held up better than growth shares.
- The Nasdaq Composite was especially weak due to a sharp decline in Salesforce.
Economic indicators:
- Core PCE prices rose 0.2% in April, down slightly from the previous two months.
- "Supercore" inflation offered a mixed picture, rising 0.3%.
- Case-Shiller index of housing prices rose 7.4% year-over-year in March.
- Mortgage applications declined 5.7%, and pending home sales slumped 7.7% in April.
Weak Treasury auctions:
- Midweek auctions of five- and seven-year notes met with subdued demand.
- Concerns raised about funding the U.S. deficit driving up yields.
- Minneapolis Fed President Neel Kashkari's comments contributed to a sell-off.
Market Indexes Changes:
| Index | Friday's Close | Week's Change | % Change YTD |
|---|---|---|---|
| DJIA | 38,686.32 | -383.27 | 2.64% |
| S&P 500 | 5,277.51 | -27.21 | 10.64% |
| Nasdaq Composite | 16,735.02 | -185.78 | 11.48% |
| S&P MidCap 400 | 2,982.86 | 6.19 | 7.24% |
| Russell 2000 | 2,070.12 | 0.45 | 2.12% |
Europe
Stock performance:
- STOXX Europe 600 Index ended 0.46% lower.
- France’s CAC 40 Index dropped 1.26%, Germany’s DAX declined 1.05%, Italy’s FTSE MIB ended flat, and the UK’s FTSE 100 Index lost 0.51%.
Inflation and unemployment:
- Eurozone inflation rose to 2.6% in May, exceeding the consensus estimate of 2.5%.
- Services inflation accelerated to 4.1% from 3.7% in April.
- Unemployment rate fell to a record low of 6.4% in April.
ECB's stance:
- ECB Chief Economist Philip Lane signaled possible rate cuts at the June 6 meeting.
- Lane emphasized the need to remain restrictive throughout the year.
UK housing market:
- Net mortgage approvals dipped to 61,140 in April.
- Nationwide Building Society’s house price index rose 0.4% in May.
Japan
Stock market returns:
- Nikkei 225 Index fell 0.4%, while the TOPIX Index gained 1.1%.
Monetary policy:
- Speculation about further monetary policy normalization by the Bank of Japan (BoJ) continued.
- 10-year Japanese government bond yield rose to 1.07%.
Currency intervention:
- Yen depreciated to around JPY 157.3 against the U.S. dollar.
- Authorities expected to have intervened twice to prop up the yen.
Inflation and economic data:
- Tokyo-area core consumer price index accelerated to 1.9% year-on-year in May.
- Retail sales rose more than anticipated in April, while industrial output unexpectedly fell.
China
Stock market performance:
- Shanghai Composite Index was broadly flat, while the blue-chip CSI 300 gave up 0.6%.
- Hong Kong’s Hang Seng Index lost 2.84%.
Manufacturing sector:
- Official manufacturing PMI fell to 49.5 in May, marking the first monthly contraction since February.
- Nonmanufacturing PMI slipped to 51.1 from 51.2 in April.
- Profits at industrial firms rose by 4% in April from a year ago.
Economic outlook:
- China expected to meet its growth target of around 5% for the year.
- IMF upgraded its 2024 economic growth forecast for China to 5%.
Policy measures:
- Shanghai announced measures to shore up homebuying demand.
- Central government rolled out a historic rescue package for China’s property sector.
Other Key Markets
Poland:
- Inflation in May measured at 2.5% year-over-year, slightly higher than April’s rate of 2.4%.
