Market movements between May 8th and 12th confirmed the two separate paths taken by the US Fed and ECB.
The second week of May comes to an end. As financial experts from all over the world prepare for the weekend, let’s quickly recap the main market events that took place between May 8th and 12th.
This week’s main market movers have undoubtedly been inflation data from the United States, China’s trade balance and the UK’s gross domestic product. But first, let’s see how the main indexes have performed.
- Following good inflationary news, the S&P 500 rallied briefly. Its week however ended in red with -0.46%.
- The Nasdaq, on the other hand, had a better weekly performance ending with a positive of +0.36%.
- The Dow Jones continued its downward spiral, ending on Friday with -1.48%.
- In Europe, all major markets experienced a hole on Thursday. Some rebounded, like London’s LSE which ended the week with +0.61%.
- The same cannot be said for Milan and Frankfurt, whose index value decreased respectively by -0.093% and -0.30%.
Good news and bad news
As we can see, the markets did not have a homogenic performance this week. Especially between the United States and Europe the difference is striking.
This might be an initial market response to the different inflationary strategies announced by the American Federal Reserve and the European Central Bank.
While the Fed signaled an end to interest rate hikes, the ECB deemed inflation still too high to start thinking about rate stabilization. While US inflation is down to 4.9% (lower than expected), the EU rate is still high at 6.9%. As always, the United Kingdom is in a league of its own, with inflation levels still in the double digits.
Therefore, the two sides of the Atlantic have to take separate strategies for future monetary policies. Not to mention that, while American GDP disappointed expectations, the EU’s actually beat general estimates. This means that the ECB has larger wiggle room when it comes to interest rates.
China’s weak trade balance
Both imports and exports were rather low in China. While goods imported declined by 7.9% annually, goods exported saw a 6.3% decrease compared to March.
Some attributed this low trading activity to a back-end effect of the zero-Covid policy, while others believe it’s a natural progression towards a service-based economy.
Others, like ING economist Iris Pang, believe this decline is due to a worsening of the global economy. Less buyers mean a weak Chinese manufacturing sector. “It is looking more likely that, in response, the government will step in to support the manufacturing sector’s labor market through fiscal stimulus,” Pang said.
