Japanese Market Hits 33-year High On Q1 GDP Upgrade

Japanese equities continued to rise last week with Nikkei 225 reaching its highest level for more than three decades. The +2.4% weekly rise which made it the best performer amongst the major indices, came on the back of updated GDP data which revealed that the economy grew faster than initially thought during the first quarter of the year. Strong domestic demand and higher capital expenditure helped the economy to expand by an annualised +2.7% which was more than a percentage point ahead of the previous estimate[1].

Elsewhere, US markets edged modestly higher ahead of this week’s Federal Reserve policy meeting. The S&P 500 added +0.4%, taking it into bull market territory with the index having risen by more than +20.0% since last October. Treasury yields also inched modestly higher having retreated sharply during the prior week; the 10-year security recovered 6 basis points (bps) to finish the week at 3.75%. Moving to Europe, markets did lose some ground with the MSCI Europe ex UK index concluding the week -0.7% lower. This likely reflected caution ahead of this weeks European Central Bank (ECB) meeting and confirmation that the Eurozone economy slipped into a modest recession during Q1. Elsewhere, the FTSE 100 declined by -0.6% whilst in China, the Shanghai Composite was flat.

Looking at commodities, oil prices retreated once again despite the prior week’s announcement that OPEC would introduce additional production cuts next month. Brent Crude declined by -1.7% to $74.81 a barrel as demand concerns relating to the health of the global economic outlook outweighed those expected future supply restrictions. Copper meanwhile shook off those global growth worries to post a gain of +1.4% to $8,349 a tonne, a second weekly uplift in a row on the back of lower inventories. Gold, meanwhile, ended the week flat at $1,963 an ounce[2].

Week Ahead

As previously flagged, the Central Banks are back firmly in the spotlight this week with both the Federal Reserve and ECB hosting policy meetings this week. The Fed is expected to hold firm on rates this time around although a shock CPI inflation reading a day earlier may prompt additional action. CPI is expected to have fallen by 80bps to 4.1% last month with producer prices also forecast to have retreated in the US last month. As for the ECB, expectations are for an additional 25bp rate increase which would push its base rate to 4.00%, the highest level since October 2008. In terms of other economic data to keep an eye on from both countries this week, both publish industrial production numbers with the US also releasing retail sales on Thursday. Moving to the UK, unemployment and monthly GDP for April are released on Tuesday and Wednesday respectively. In Asia, the Bank of Japan also has a policy meeting this week although no changes to its highly accommodative stance are expected to be implemented. It’s a busy period for key Chinese figures with industrial production, retail sales, fixed asset investment and unemployment also due during the early hours of Thursday morning[3].

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[1] Cabinet Office Economic and Social Research Institute, 12/06/23

[2] Refinitiv, 12/06/23

[3] Forex Factory, 12/06/23

SJP Approved 12/06/23