World equities declined marginally in local currencies (-0.3%). Expressed in euro, they gained 2.4%.
Positive market performance was highly concentrated in US technology stocks. Within the IT sector, Apple (+4.6%) and Microsoft (+7.1%) posted a strong performance, but the stock price of the third largest company, Nvidia, skyrocketed (+36.3%). Investors expect strong demand for Nvidia’s artificial intelligence chips. Nvidia’s market capitalization is now close to 1 trillion USD, meaning that it has become the world’s fourth largest public company behind Apple, Microsoft and Alphabet but before Amazon.com. The stock prices of chip manufacturers Broadcom and AMD also surged (+29% and +33.3%).
Apart from IT, only communications services and consumer discretionary sectors advanced, but only in the US thanks to the performance of Amazon.com, Tesla, Alphabet and Meta.
The Nasdaq 100 surged by 7.7%.
Performance in the other sectors was negative, more so in energy, real estate, consumer staples, materials and utilities. The US debt ceiling deadline ($31.4 trillion) and the risk of a US default weighed on all sectors unrelated to AI. Of course, there will be no default. After though negotiations, Republicans and Democrats reached a compromise. On May 31, the House of Representatives, in which the Republicans have a very short majority, voted to suspend the debt ceiling for the next two years. The Senate, controlled by the Democratic party, will surely vote in favour of this before June 4.
Small and mid-cap stocks underperformed.
Once again, Chinese equities performed poorly and lowered the average performance of emerging markets. This was due to disappointing economic indicators for the manufacturing activity and the real estate sector. Korean and Taiwanese equities performed well (due to semiconductors), and so did the Indian market.
The US debt ceiling issue had an impact on the dollar bond market, but yields did not rise significantly. The yield on 10-year US Treasury bonds went from 3.42% to 3.64%. There was little volatility in the euro debt market. The yield on 10-year Bunds went from 2.31% to 2.28%. Bond indices (sovereign, investment grade and high yield) posted small positive returns.
The governing councils of the Federal Reserve and the European Central Bank met on the 3rd and 4th of May. Both decided to raise their target rate by 0.25%. The Fed’s target range is now 5 – 5.25%. The next FOMC meeting will take place on June 15, and there is a good chance that the committee will leave its key rate unchanged.
Inflation continues to go down. The Year on Year CPI is now down to 4.9% in the US and 6.1% in the eurozone. Core inflation (excluding food and energy) is more resilient. It represents 5.3% in the eurozone and 5.6% in the US, where it is now above the broader CPI.
The
euro
fell sharply against the dollar (-3.0%) and the pound (-2.0%). To a lesser extent, it depreciated vs. the Swiss franc, the yen and the yuan.