This week we used a couple of AI programs to produce an AI generated market summary (and then our own output below). In this case it didn’t really save us much time, and we did it because we thought advisers would be interested in what the results looked like. The output is not that dissimilar to the financial reporting seen in mainstream newspapers, although interestingly that is not where the information really came from. We used a combination of extractive AI (pointing the model at certain pieces of information) and generative AI (letting it roam the internet). It didn’t save much time because we had to spend just as much time fact checking the second element, but it is becoming clear that extractive techniques are now fairly robust and will save a lot of time as we go about our research. Anyway, this is what the AI had to say about markets last week:  

“RBA Interest Rate Hike

The Reserve Bank of Australia (RBA) surprised the market last week by raising interest rates by 25 basis points, bringing the cash rate to 4.1%. The decision was driven by the need to ensure inflation returns to target levels, following recent strong data indicating further upside risk to inflation. The RBA also mentioned that further tightening may be required while remaining data-dependent.

Australia's Q1 GDP Growth

In Australia, the first-quarter GDP growth came in at 0.2% quarter on quarter, falling short of the consensus estimate of 0.3%. While this still indicates economic growth, the pace continues to slow.

US Market and Economic Updates

Weak ISM Services Data

The US ISM services data for May revealed a decline to 50.3, down from 51.9 in April and below the forecast of 52.2. The details showed decreases across the board, with new orders falling to 52.9 from 56.1 in April, and business activity and new export orders also registering a decline.

US Inflation Data and Federal Reserve Decision

Investors are eagerly awaiting this week's US inflation data for May and the Federal Reserve's interest rate decision. The central bank is widely expected to keep its key interest rate unchanged in June. However, its path for the rest of the year remains uncertain, as concerns about rapidly rising rates have previously squeezed technology stocks' returns.

European Market Developments

EU GDP Contraction

The European Union (EU) reported an unexpected contraction in its GDP for the first quarter, recording -0.1% growth compared to the expected 0% growth. Details showed that household and public sector expenditure both decreased after a downward revision in Q4 2022. This marks the second consecutive quarter of negative growth for the EU.

Asian Market Updates

China's Inflation Data

China's inflation print for May came in slightly below expectations at 0.2% year on year, compared to the anticipated 0.3% and the April print of 0.1%. This data indicates that the Chinese economy is gradually recovering from the pandemic-induced slowdown.

The Week Ahead

The upcoming week is packed with economic data releases and key events. On Tuesday, the US inflation print for May and UK employment data will be released. The Australian employment data is scheduled for Wednesday, followed by the US retail sales, European Central Bank (ECB) interest rate decision, final EU inflation print for May, and preliminary University of Michigan Consumer Sentiment Survey on Thursday.”

In conclusion

And we’re back again. So how did the AI do? Not bad we think, but we’ll let you be the judge of that. In recent months we have moved away from this kind of summary and tried to be a bit more interpretive, perhaps intuitively not wanting to compete head on with the coming AI hordes. Maybe this kind of summary has a role, and we may include a section like this in future. We will of course openly differentiate between AI generated commentary and our opinions. Let us know what you think.    

This begs the question of what we actually make of what is going on in markets. As far as last week is concerned, it seems that the market has rapidly discounted the near and medium-term impact of developments in AI on the profits of the most obvious beneficiaries, and there are question marks now regarding whether these stocks now look quite expensive, and who the less obvious beneficiaries that remain are. An uptick in volatility suggests cracks are appearing in the narrative. Simultaneously, the prospect of a US recession is becoming increasingly difficult to ignore as the producer side of the economy weakens, even if the consumer still looks resilient. The AI didn’t have that much to say about stocks as not a lot happened, although Tesla was up another 15% on news that other large car manufacturers were looking to leverage the company’s charging infrastructure. In Australia there actually wasn’t that much stock specific news, but banks and local real estate stocks were both on the back foot, perhaps because the prospect of a recession here increased slightly (so far around 60% of economists still think we will get off lightly in a US led global recession).  

Overnight the ground shifted again, as US CPI came in lower than expected for May at 0.1%. Core CPI (ex-volatile items like food and energy) was also lower than expectations at 0.4% and many commentators took comfort that some of the underlying sector metrics showed encouraging trends. Still, that is the level that it has settled at over the last 6 months, and if it continued that would annualise at a rate of 5% for the year. There was seemingly some of everything in this keenly awaited report, but the market took a cautious stance and short-term yields actually rose, indicating that that a so-called ‘hawkish pause’ remained the most likely outcome from tomorrow’s rate announcement from the US Federal Reserve.

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