Quilter Cheviot|Weekly Comment

Stocks make further gains

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Global equities continued to advance last week, driven higher by gains in the US and mainland Europe, as the MSCI All Country World Index rose 1.0% to take the 2023 return to 16.7%. UK bond yields increased following better-than expected economic data, with the 10-year gilt yield rising by 18 basis points to end Friday at 4.28%, up 62 basis points year-to-date.

Both US and Europe ex UK stock benchmarks rose 1% on the week, in line with global indices. The release of Nvidia’s third-quarter earnings was the standout event for US markets, in a shortened trading week due to the Thanksgiving holiday. The artificial intelligence chipmaker reported a beat on earnings and revenue, but shares pulled back a little in response, probably due to cautious guidance because of Chinese export restrictions. As the sixth largest publicly traded company in the world by market capitalisation the results have a tangible impact on benchmarks, and it was not surprising given the initial softness in Nvidia’s share price that technology indices lagged a little on the week.

The consumer remains a strong positive force underpinning the US economy and initial reports are pointing to a record level of spending across the Thanksgiving holiday weekend, which includes Black Friday sales. However, there was some weakness apparent in the latest US purchasing managers index (PMI) figures, with the manufacturing component slipping back into contractionary territory. This closely watched gauge of economic activity has spent most of the last 12 months below the 50 mark that denotes contraction/expansion and has fallen back to 49.4 after a 50.0 print last time out. The previous reading was only the second time this monthly data point has not been in the 40s in the last 12 months. That said, it remains significantly higher than Eurozone and UK equivalents.

Better UK data

The day before, the latest UK manufacturing PMI was released and although the reading of 46.7 is clearly in contractionary territory, it was well above the 45.0 consensus forecast. This is the third month running that the metric has surpassed expectations, suggesting that UK economic activity is surprising to the upside, albeit against modest expectations. The services component also came in better than expected, rising to 50.5 from 49.5. Services readings have consistently come in better than manufacturing equivalents over the past year or so and a print above 50 signals a move back into expansionary territory after three consecutive sub-50 readings.

The data pushed UK government bond yields higher and brought a noticeable relative move compared to US and European equivalents, with a more than 10 basis points gain at the 10-year point of the curve. The data and related rise in bond yields supported sterling, with the pound rising to 1.26 against the US dollar. UK stocks underperformed on the week, declining 0.1% to leave 2023 returns at 4.1%.

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