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Revived hopes of rate cuts boost stock market sentiment

Wall Street stock indexes rose sharply on Friday after unexpectedly weak US labour market data rekindled hopes that the Federal Reserve will soon cut interest rates. Stock market sentiment was also boosted by strong quarterly reports from companies such as Amgen, and Apple's announcement of a record share buyback. In Asia, stock indices largely followed Wall Street's lead. 

Alessandro Fezzi, LGT
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5 minutes
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On Monday, the Asia-Pacific markets followed Friday's price gains in New York. However, the stock exchanges in Tokyo and Seoul remained closed due to a public holiday. The Hang Seng Index in Hong Kong remained unchanged, while the CSI 300 on the Chinese mainland rose by 1.3%. Australia's S&P/ASX 200 rose 0.6%, marking the third consecutive day of gains. Meanwhile, investors awaited the Reserve Bank of Australia's (RBA) interest rate decision on Tuesday. The latest inflation data from Australia showed that price rises are beginning to accelerate. However, the financial markets are assuming that the RBA will leave its key interest rate unchanged at 4.35%.

In New York, the Dow Jones Industrial ended last week with a daily gain of just under 1.2% and a closing level of 38,675.68 points. Over the week, the index gained 1.1%. The S&P 500 rose by 1.3% to 5,127.79 points on Friday and the technology indices on the Nasdaq rose by just under 2%. In terms of individual stocks, the focus was primarily on Apple shares. At the end of last week, the iPhone manufacturer presented quarterly figures that were somewhat better than feared and announced the prospect of a USD 110 billion share buyback. The US biotech company Amgen also attracted attention with its optimistic statements on an experimental anti-obesity drug, which caused the share price to rise by almost 12%. However, the weaker-than-expected US labour market and, in particular, the slowdown in wage growth provided a tailwind. This could make interest rate easing by the Fed more likely again in the second half of the year.

As the US Department of Labour reported last Friday, job creation in April was significantly lower than in previous months and the unemployment rate rose from 3.8% to 3.9%. Excluding the agricultural sector, 175,000 new jobs were created in April, the weakest growth since last autumn. On average, the market was expecting job growth of 240,000. In addition, employment growth in the two previous months was weaker than expected and was revised downwards by a total of 22,000 jobs. Furthermore, wage growth weakened somewhat in April. Average hourly wages rose by 0.2% on a monthly basis instead of 0.3% as forecast by analysts.

Hopes of interest rate cuts by the Fed were also fuelled by the latest ISM survey data on sentiment in the US service sector. The Purchasing Managers' Index fell to its lowest level since the end of 2022, causing yields on the bond market to fall to 4.5% and the US dollar to react with losses on the currency market.

Corporate news in focus: Berkshire Hathaway, DHL Group.

Economic data in focus: Purchasing managers' survey data from the private sector for France, Germany and the eurozone. Sentix investor confidence survey, eurozone producer prices; SNB President Thomas Jordan speaks.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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