Commentary: a broad-based rally in equities
In past week, global equity markets saw strong gains that were more broad-based than in preceding weeks. All benchmark US indices (S&P 500, Nasdaq 100, and Dow Jones 30) closed the week in green. In contrast to most of the year, the small and medium-cap equity indices as well as the S&P 500 equal weighted index delivered solid gains. This is a positive sign for general equity markets, as typically, bull markets are produced by broad-based rallies rather than by outperformance of few mega-cap stocks (which has largely been the case in 2023).
Unlike the US, in Europe the lower-than-expected inflation data failed to deliver positive performance in equities. This was largely due to the speech from the ECB president, Christine Lagarde, who reiterated the hawkish stance of European monetary authorities. Inflation in Euro Area has been gradually declining since November 2022, with the headline (core) figure now standing at 6.1% y/y (5.3% y/y).
The major macroeconomic highlight from last week was the mixed labor market data from the US. In May, the US economy added 339,000 jobs, almost 80% more than the forecasted figure of 190,000. On the flipside, some softness in labor market is observed as well. Firstly, unemployment rate edged up to 3.7% from 3.4%, which implies less tightness in labor supply and demand. Secondly, the wage growth has moderated slightly to 0.3% m/m (4.3% y/y). Importantly, meaningful softening in labor market conditions is necessary for inflation to retreat further.
