Market Commentary: week to 11 June 2024

The Bank of England's ("BOE") outgoing Deputy Governor, Ben Broadbent, defended the bank’s policy-making process against accusations of groupthink, highlighting robust discussions at meetings. While acknowledging progress on inflation, Broadbent hinted at possible rate cuts ahead of the BOE's next meeting in the coming months. Meanwhile, there has been positive news on the consumer front; the British Retail Consortium reports UK shop price inflation has returned to normal levels, with May seeing the lowest annual shop prices since late 2021. This decline, likely due to subdued consumer demand, coincides with the fastest growth in UK retail sales since December 2022, as reported by the Confederation of British Industry Distributive Trade Survey, suggesting rising consumer confidence.

US equities closed mostly down in the week, ending a five-week winning streak for the S&P 500 and Nasdaq. The equal-weight S&P outperformed, suggesting a shift away from large-cap tech (except Nvidia, which was up 2.9%). Key themes included a flattening yield curve, mixed consumer earnings, and a heightened focus on software companies' financials. The market remains cautious, with expectations of a minimal rate cut by year-end. The Personal Consumption Expenditures (PCE) inflation report, in line with forecasts, offered dovish hints due to slightly lower personal spending. This suggests weakening consumer demand and potential pricing pressure, though overall spending remains resilient. Beyond PCE, May's consumer confidence improved, first-quarter GDP fell short, and jobless claims were steady.

A recent Bloomberg article highlighted that hedge funds and leverage investors have turned bullish on sterling, reversing previous bearish bets. This sentiment is based on expectations that the BOE will maintain higher interest rates for longer than other central banks. Consequently, sterling is nearing its strongest levels in years against the yen and euro and is set for its best month against the dollar since November.

The London Times has reported that investment trust buybacks are on track for a record high this year as London's listed funds continue to trade at significant discounts to their underlying values. The article states that investment companies spent ￡2.2 billion on buybacks in the first 4 months of the year, an increase of over 100% in comparison to last year. It was also noted that investment trusts make up more than a third of the FTSE 250 index. CityAM also reported that London's status as a global tech capital remains strong, retaining its top position in think tank Z/Yen's ranking. It was stated that this may ease fears that the UK is losing ground to EU locations as a global hub for start-ups.

The number of UK homes for sale reached an eight-year high in May, with average agent listings up 20% from last year. The supply of 3- and 4-bedroom houses increased significantly. Despite recent declines in mortgage rates and rising sales volumes, cautious buyers are keeping prices in check. The number of sales agreed in May rose 13% year-over-year.

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