Global Equity Weekly

April 26, 2024 | 17:36

Gut Check for Tech

Economist

Senior Economist and Vice President
Economics

Carl Campus joined BMO Economics in 2007 as a Research and Technical Assistant; he was later promoted to his cur... (Read more)

Carl Campus

Senior Economist and Vice President
Economics

Carl Campus joined BMO Economics in 2007 as a Research and Technical Assistant; he was later promoted to his cur... (Read more)

Corporate earnings to the rescue… After being stuck in the mud for much of April, global equity markets were thrown a lifeline from a string of solid corporate earnings, which helped take the sting out of yet another uncomfortably warm inflation reading. Still, the acceleration in the three-month annualized trend for the U.S. core PCE deflator to 4.4% in March will keep policymakers on high alert. While the month-over-month moves in February and March were slightly milder than January’s hot print, the overall trend is unlikely to foster the level of confidence the Fed wants in order to initiate rate relief anytime soon. That was the final nail in the coffin for our prior expectation of a July commencement of Fed rate cuts, which we now see beginning in September, with a follow-up cut in December.

The S&P 500 added 2.7% this week, with broad-based gains led by technology, consumer discretionary and banks. Energy underperformed but continues to be among the top sectors year-to-date. The S&P/TSX followed roughly the same pattern, but on a much more muted scale, finishing up just 0.7%. On a sector basis, consumer staples led the way, while industrials lagged the pack. More broadly, sentiment may have been taken down a notch following the latest Summary of Deliberations from the Bank of Canada, which hinted at a gradual pace of rate relief. While we still lean towards a June start for BoC rate cuts, we’ve pushed back our expectation for a second cut to September.

Equity performance around the globe largely mirrored the moves in North America. European bourses overcame a mid-week lull, with the major indices finishing broadly in the black, led by a solid 3.1% gain in the UK’s FTSE 100. Germany’s DAX index also put in a strong showing, rising 2.4%, snapping a three-week losing streak. Economic data on the continent were mixed and largely second tier this week. As such, the ECB continues to steer expectations toward a first rate cut in June, though sticky services inflation, reflected in the April PMI data, remains a clear risk to the outlook.

In Asia, Japan’s Nikkei rose 2.3% this week, only partially climbing out of last week’s deep hole. In any event, the plunging JPY continues to steal the spotlight with the currency now brushing up on ¥158—another fresh 34-year low. Could it finally be time for currency intervention? Officials at the MOF have been hinting at it, though they didn’t make any major moves this week. Meantime in China, a Friday surge in the CSI 300 yanked the index out of the red. Sentiment had been dragging its feet over the course of the week, due in part to rising U.S./China tensions. That is, until the tech sector seemingly turned the tide.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance