US On Wall Street stocks rallied on Friday with the tech-heavy S&P500 recovering the weeks early losses to close out in positive territory after optimism grew that a debt ceiling agreement could be found. The Dow Jones Industrial, S&P500 and Nasdaq rose 1.00%, 1.30% and 2.19% respectively.
US president Joe Biden says that talks with Republican Kevin McCarthy over the debt ceiling are progressing well and he remains confident that a deal can be struck in the coming days. Markets have been volatile in recent days as the deadline, 1st June, approaches, and the risk of a US debt default, which could derail the US economy and have widespread global impact, grows.
Consumer spending increased more than expected in April jumping 0.8% compared with 0.1% in March. While this is good news for the economy and boosts growth prospects for quarter two it also puts pressure on the FED to continue current fiscal policy and raise interest rates at its next meeting. Over the past 12 months the FED has raised interest rates in a bid to cool demand and reduce inflation.
Nvidia’s first quarter earnings report pleased shareholders on Thursday helping the stock reach record highs and surge over 24% in a single day closing the week up over 26%. Yeah to date the California based chip maker has seen its market cap grow by almost 110% as CEO, Jensen Huang, said that the company was ramping up production to meet the massive demand for AI technology.
Mexico
The Mexican economy began the year with a growth slightly below estimates, mainly due to a sticky industrial sector, revealed data published by the Instituto Nacional de Estadística y Geografía (Inegi).
During the first three months of 2022, economic growth, measured by Gross Domestic Product (GDP) grew 1.0% in real terms compared to the previous quarter, a rate slightly lower than the 1.1% forecast almost a month ago by the Institute.
Following last week’s decision by Mexico’s central bank, Banxico, to hold rates at 11.25% the pesos fell to 17.61 against the dollar, the adjustment was not unexpected by analysts.
Europe Data showed this week that Germany had officially entered a recession, characterized by two consecutive quarters of contraction. Following a 0.5% contraction between October and December 2022 and 0.3% contraction in the first quarter of 2023 Europe’s largest economy is now officially in recession. Persistent high prices (inflation), above the eurozone average, and Germany’s reliance on Russian energy have been a burden on the economy over the past 12 months. However, the recession is less severe than many expected and the German central bank, the Bundesbank, have predicted modest growth for quarter three.
The IMF have cited “resilient demand” and “falling energy prices” as factors contributing to the probability that the UK will avoid recession in 2023. After previously predicting a contraction to the UK economy of 0.3% for this year it has revised its stance and now expects the economy to grow by 0.4% the IMF’s managing director, Kristalina Georgieva, said this week. While the UK saw inflation fall in April to 8.7%, from 10.1% in March, the IMF report has also predicted that the Bank of England would not be able to get inflation to its 2% target until 2025.
Asia
US debt ceiling woes continued to dominate global markets this week with Thursdays tech inspired rally doing little to save the week. Japan’s Nikkei 225 index closed the week up 0.35% and Chinas mainland index the Shanghai Composite closed down 2.16%.
Steel prices in China have declined more than 17% since March to their lowest level in 3 years this week. The drop in prices comes during what is usually considered peak period for construction in China as the world’s second largest economy continues to struggle with flagging growth. Property and infrastructure account for about 60% of steel demand.
Newly appointed Bank of Japan governor, Kazuo Ueda, said that Japan would not join the global wave of inflation fighting despite inflation hitting its highest level since 1982 of 4.1% in April. For decades Japan has struggled with deflation and stagnant levels and is happy to enjoy this period of growth and economic recovery led by supportive fiscal policy and a surge in tourism.
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