A volatile week for risk assets, where negative sentiment in bond markets due to further evidence that inflation and growth were still more elevated than forecasts anticipated earlier in the year, were more than offset by good earnings results and helped markets climb the wall of worry, ending up higher for the week.
With over 200 companies in the S&P 500 having reported so far, the picture was encouraging. Big technology companies such as Alphabet and Microsoft keep delivering earnings and sales forecast beats, with their capital spend on Artificial Intelligence (AI) seemingly paying off. Surging cloud revenue, fuelled in part by AI services, led to robust growth. Even though Tesla’s results weren’t positive, the stock rallied after announcements that it would continue to look into manufacturing a cheaper entry level mass market vehicle. Meta was one company that suffered this week, as slowing sales coupled with a commitment to spend more on AI led investors to think that the company was behind the curve in the AI race. Boeing was also punished after its’ credit downgrade and faster than anticipated cash burn.
In macro news, the Bank of Japan stayed pat on its’ tightening cycle, as the latest inflation print came in materially below expectations and prior readings, at 1.8% for the year to April. This led to the Japanese Yen depreciating even further, breaching 156 to the US dollar in Friday trading, levels not seen since the early nineties. The US however, showed that its’ inflation battle was far from won when evidence of sticky prices cast doubt on the ability of the central bank to start cutting rates later this year. Core quarterly Personal Consumption Expenditure (PCE) inflation rose to 3.7% ahead of expectations, even though Gross Domestic Product (GDP) was reported lower than the prior reading, all of which leading to a year-to-date high in US yields, touching 4.7% in the 10 year treasury bond.
