Economic Data and Market Highlights
Global equity markets declined in varying degrees as investors began to grapple with the likelihood that rate cuts by the US Fed may not be on the horizon in the near future and the possibility of no cuts in the calendar year as Core CPI came in hotter than expected. As the week progressed, warnings that Iran may possible engage militarily with Israel exacerbated the decline in equities as investor detracted from positions and added to bonds. Global bonds on a USD basis declined 96 basis points. US Treasuries in aggregate fell 34 basis points. Of note, the US Treasury 10-Year Auction on Wednesday closed at a rate of 4.56%. The previous auction closed at 4.17%.
Wednesday’s Core CPI result as noted above came in at 40bps versus a 30bps month over month increase. If you remove housing, that increase was 65 basis points. This is one of the largest jumps month-over-month in the post-pandemic period.
Most of the CPI gains were related to consumer services which rose 5.4% year over year. Consumer good have declined 0.7% year over year.
The MSCI All Country World Index (ACWI) fell 1.35% with Germany falling in USD terms 2.96% while Japan added 1.08% and the UK declined 31 basis points. The benchmark represents Large and Mid-Cap names across 23 developed and 24 emerging economies. The US accounts for roughly 64% of the benchmark as of 3/31/24 with Japan, and the UK as the next two largest countries at 5.5% and 3.4% respectively. The S&P 500 fell 1.52% as more value-oriented sectors accounted for most of the decline (Financials -3.6%, Materials -3.08%, and Health Care -3.05%). Microsoft, Apple, Nvidia, Amazon, Meta and Google held the tops spots in both the S&P 500 and the MSCI ACWI accounting for 25.91% and 16.84% respectively. More comprehensive market data can be found at the end of this report.
As noted above, Financials were the weakest sector over the last five trading days. JPMorgan and Wells Fargo who both reported earnings on Friday missed analysts’ estimates of net interest income, which is earnings generated by lending. For JPMorgan, this slippage was the first quarterly decline in close to three years. In response, shares for the bank fell the most since 2020, falling 6.5%. Meanwhile at Wells Fargo, deposits that don’t pay interest fell 18% from a year earlier while interest-paying deposits jumped. Wells Fargo fell 0.4% throughout the day Friday.
Due to surging interest in AI stocks, Taiwan has seen a massive increase in investments in the last year. The Taiwan Stock Exchange Weighted Index has risen over 30% in the last year, primarily driven by Taiwan Semiconductor Manufacturing Co. The world’s leading chipmaker and primary supplier for Nvidia. Taiwan now holds over $50B in ETFs tracking local stocks which is an 80% increase from last year and 12x 2019 levels. Total ETF holdings have risen to $130B. Currently, 80% of assets invested in equity ETFs come from retail investors.
Microsoft is going to invest $2.9 billion in data centers in Japan by 2025 which marks the biggest investment in the country as they plan to boost more computing power in the region. Microsoft will install advanced AI semiconductors at two existing sites in eastern and western Japan. Microsoft is still the number two provider of cloud services in the world behind Amazon web services. The new lab will provide 1.5 billion yen to both the University of Tokyo and a partnership between Keio University and Carnegie Mellon University to fund research projects in the next five years.
The Past Week’s notable US data points:
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Morningstar, Morgan Stanley, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director, Head of Research
Michael McNamara, Analyst
Sam Morris, Analyst