Michigan survey a key focal point

• European markets rise after uncertain Asia and US trade.
• Japan contracts in Q1.
• Michigan survey a key focal point.

European markets continue to gain traction this morning, with the DAX rising back up towards record high territory. Nonetheless, we have seen some questions emerge over the longevity of this recent run for US and China related stocks, with the Nasdaq having gained over 30% from their April lows. Indeed, yesterday did see the Nasdaq lag after leading the recent resurgence, with most of the mag7 names down on the day. Those recent tech gains have been largely centered on AI-related stocks that could benefit from the emergence of Saudi Arabia as a new market for AI products and services. Incredibly, Nvidia has enjoyed a 57% bump in less than 6-weeks, regaining $1 trillion worth of market cap to overtake Apple to become the world’s second largest company once again.

Overnight data out of Japan saw an unwelcome slump in Q1 growth, with GDP falling to -0.2% after a 0.6% gain in the fourth quarter of 2024. This marks a significant shift in direction for the Japanese economy after three particularly strong quarters. One key aspect of weakness came from the non-existent growth in private consumption, which accounts for over half of the Japanese growth figure. This is often the case for the first quarter, following the consumption heavy Q4 which represents the biggest holiday season in Japan. Nonetheless, the yen has continued its recent strength, pushing back on the notion that the BoJ are going to change course towards a more dovish stance anytime soon.

Looking ahead, today sees the release of the latest University of Michigan survey, which has been a source of major consternation for markets of late. On one side we have seen a huge collapse in consumer sentiment, falling from 73.2 to 50.8 in just three-months. On the other, the inflation expectations element has seen a sharp spike, with the 12-month outlook for prices having doubled since the turn of the year. With the Michigan survey having predicted both weaker economics and higher inflation, it comes as no surprise that markets have been paying close attention to this release of late. Nonetheless, we are yet to see the weakness within this ‘soft data’ transmit into the ‘hard data’, with the latest CPI and PPI both coming in below expectations. As such, in the absence of any major deterioration in the big data points and with tariffs reduced between the US and China, today’s Michigan release provides an opportunity to see whether markets care about soft data anymore.