Roaring Kitty is back
César Pérez Ruiz, Chief Investment Officer, Pictet Wealth Management.
THE WEEK IN REVIEW
“Roaring Kitty”, the social media finance influencer, re-emerged after a three-year hiatus and shares in a videogame retailer he previously favoured duly soared, with the company taking the opportunity to announce plans to sell up to 45 mn new shares. In the wider market, signs of a cooling US economy calmed inflation worries, helping all three major US stock indexes rise to record highs. The Dow Jonesi surpassed the 40,000 mark.
In Europe, 65% of Stoxx 600ii companies have beaten EPS expectations in the first quarter and, on a local currency basis, European stocks have outperformed their US peers over the last three months.
In Asia, Japanese government bond (JGB) yields rose to their highest in more than a decade, as top Japanese companies agreed to wage increases of an average 5.58% and bets grew that the Bank of Japan could raise interest rates in coming months. Now Japanese insurance companies can buy JGBs and match their liabilities in yen.
QUOTE OF THE WEEK
“Dealing as Europeans means you need consolidation as Europeans,” said French President Emmanuel Macron, calling for consolidation in Europe’s banking sector even if that meant a European rival buying a big French bank.
KEY DATA
After accelerating in the first quarter, US inflation slowed to 3.4% on an annual basis in April from 3.5% in March as services and shelter inflation declined. US retail sales were weaker than expected in April.
Japanese first quarter GDP contracted by 2.0% quarter-on-quarter annualised. In addition, Japanese GDP growth in the fourth quarter of 2023 was revised down to 0%. In China, growth in industrial production came in at 6.7% year-on-year in real terms, above consensus expectations, but retail sales growth was at only 2.3% year-on-year in April.
Euro area GDP grew by 0.3% quarter-on-quarter in the first quarter.
MARKET VIEW
The softer US inflation and retail sales data go in the right direction but will not change the Fed’s course, with policymakers saying they need to be patient. We expect two rate cuts this year, starting in July. Purchasing Managers’ Indices (PMIs) for the US and euro area will be key this week. Gains in global PMIs have helped copper prices gain 20% this quarter.
In Asia, our current Japanese full-year growth forecast of 0.7% is subject to downside risk after the latest GDP release. China’s new measures to stabilise the property sector, including a provision for local government to procure unsold/unfinished housing units and turn them into social housing (for rent), could finally put a floor under the sector. Chinese real estate equities rallied after the government announced the measures.
The sudden death of Iran’s president adds more uncertainty to the Middle East. We are overweight gold as a hedge against geopolitical risk.
In markets, our 2024 themes of M&A and buybacks are being reinforced by further activity, including buybacks in the Japanese lending sector. US M&A deal activity in April rose 6.9% from March. Another of our themes, moving from consumer- to producer-focused companies, is supported by the bankruptcy of a US restaurant chain and some weak travel sector results.
