Skip to main content

Following a very strong recent run, most share markets took a breather in the final week of May but overall posted healthy gains for the month. The S&P 500 added 4.8%, Nasdaq was up 6.9%, and MSCI ACWI Index finished the month 3.8% higher. However, the U.K.’s FTSE lagged, up 1.6% as surprise general elections weighed on investor sentiment while China’s Shanghai Composite underperformed, slipping 0.6%.

On the economic data front, after surprisingly strong Q1 inflation, core PCE inflation in the U.S. slowed at 0.249% month-on-month and 2.75% year-on-year which was close to consensus and U.S. Fed official expectations. Furthermore, U.S. GDP was also revised lower from 1.6% in Q1 previously to 1.3% on softer durable goods spending and in this regard, the 0.1% month-on-month decline in real consumer spending was further evidence of a moderate slowdown in real activity.

In our view, downward revisions to U.S. economic growth and lower inflation should be an encouraging sign for U.S. Fed officials that inflation is continuing to ease and a number of rate cuts are warranted later this year. While markets are pricing in the first rate cut in September, we estimate a July cut to be a possibility as activity slows and labour markets loosen.

In the Eurozone, headline inflation increased from 2.4% year-on-year in April to 2.6% year-on-year in May. In spite of this recent uptick in inflation, the ECB is expected to announce its first 25 basis points interest rate cut in eight years on Thursday 6th June as the inflation profile overall continues to trend down (albeit still elevated) and economic growth remains subdued.

In China, both manufacturing and non-manufacturing PMIs surprised to the downside in May. The May manufacturing PMI slipped again into contraction territory, losing a sizable 0.9% points to 49.5, much lower than market expectations as persistent demand weakness eroded production strength. Non-manufacturing PMI was basically flat from last month at 51.1, below market consensus at 51.5.

In commodities, iron ore prices remained around US$115/tonne, and gold trended sideways at US$2,348/ounce. Oil prices continued to ease lower within the US$82-85 range seen through May, with prices hovering at US$81/barrel on the back of weaker data, including rising oil inventories, tepid demand, and refinery margin weakness and the increasing risk of run cuts.

Given this backdrop, we continue to expect that OPEC+ holds its production cuts and more recently, OPEC+ has agreed to extend most of its deep oil output cuts well into 2025.

In regards to copper, the commodity finished the month at US$9,913/ tonne and we expect consolidation in copper prices over the next 3-6 months although, more broadly, the red metal is on a path to US$12,000k/t over the next 12-18 months, with the timing and degree of the next leg in the bull market depending on degree of easing in both China and the U.S. along with global manufacturing recovery.

In Conclusion

As we move closer to the halfway mark for calendar 2024, the U.S. economy has displayed remarkable resilience, with stocks at near all-time highs and the S&P 500 defying forecasts for a slowdown. Looking ahead, the overall global outlook hinges on U.S. performance and the U.S. trajectory will affect global outcomes directly, due to the large U.S. share in global activity, but also indirectly through– for example the implications for other central banks.

While the debate on interest rate direction persists for most economies, the cycle finally appears to be turning in the U.S . The U.S. Federal Reserve’s next interest-rate meeting is set for June 11 & 12 and a majority of economists expect that there will be no change at this meeting based on guidance from Fed officials over the past six weeks. While markets are now pricing in a cut in September, economists expect a July cut to remain a very likely possibility as despite all the concern with recent inflation readings, disinflation seems to have made sufficient progress along with signs of softening in the economy and weaker labour markets.

Against the backdrop of geopolitical challenges, the complex economic and investment landscape continues to evolve and therefore, the path being travelled is both unprecedented and unpredictable. However, a well-diversified and balanced portfolio across assets and regions along with exposure to structural themes is likely to benefit investors who remain nimble and are prepared for surprises.

Authored by Radhika Singla – Research Associate – at Bell Potter Securities, 4 June 2024
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.