Quilter Cheviot|Weekly Comment

Markets await key events

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Last week was a fairly quiet one for financial markets as global equities and bond yields edged higher. The MSCI All Country World Index rose 0.6% in US dollar terms, taking 2023 returns to 11.5%.

The US stock markets outperformed, with broad-based benchmarks moving into bull market territory, after chalking up a 20% gain from last October low. An interesting development was the small unwinding of some of strong outperformance amongst a handful of stocks that have accounted for the bulk of the market’s gains year to date, with an equal-weighted benchmark outperforming a market capitalisation-weighted benchmark for the first time in eight weeks. This is likely just a case of some position squaring ahead of major macroeconomic events.

This week will go some way to determining flows for the rest of the month, and potentially even the summer, as investors will learn the outcome of the latest Federal Reserve monetary policy decision and see the latest US inflation figures. Central bank meetings are very much in the spotlight with the European Central Bank and Bank of Japan also set to announce the outcome of their own decisions. Last week unexpected rises from the Reserve Bank of Australia and the Bank of Canada contributed to the increase in global bond yields, as investors begin to place a greater probability on there being more tightening to come before the cycle of increasing interest rates concludes.

The yield on UK 10-year gilts rose nine basis points on the week, ending at 4.24%. UK equity benchmarks dipped 0.5%, paring year-to-date gains to 3.5%. Europe ex UK was also slightly lower closing down 0.6% to take 2023 gains to 11.5% – closing mirroring global benchmarks. The pound continued to trade close to its highest level of the year against the US dollar, edging up to 1.26.

Japanese stock markets rose to fresh 33-year highs as the yen remains close to recent lows versus the pound and US dollar. This is largely a result of the monetary policy divergence between the Bank of Japan and its peers, as it maintains its stance on holding out on raising interest rates. Any suggestions this may change will be closely scrutinised in the communication surrounding this week’s policy decision.

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