Market Synopsis: Stocks Up, Treasury Yields Down, Commodities Up, Dollar Down, Crypto Down
Past Week Events:
This Week's Events:
Prices have declined as inflation falls below expectations in June: In the US. inflation rose in June, with prices rising just 0.2% for the month, below expectations of 0.3%. This marks the lowest annual inflation rate in more than two years. CPI, which measures changes in the prices of a basket of goods and services driven by urban consumers, rose 3% from a year ago, the lowest number since March 2021. This decline in prices could cause the Federal Reserve to reevauluate its positioning in terms of rates. Still, core inflation, which excludes food and energy price volatility, is still, however, running well above the Fed's annual target at the rate of 2%.
Producer Price Index rises less than expected in June: The Producer Price Index (PPI), which measures changes in the selling price of goods produced by domestic producers, was 0.1% higher than expected in June, the Labor Department said. Economists had forecasted a 0.2% increase. Excluding food, energy and business services, the PPI rose 0.1%, in line with expectations. The report comes after the June CPI showed a smaller-than-expected increase, indicating that inflation in the U.S. has slowed. Figures for large producers have fallen faster than consumer inflation figures, with the headline PPI actually falling 0.4% in May.
Tightening lending standards slows consumer credit growth: Rising interest rates are slowing consumer credit growth and banks are tightening lending on credit cards. As the economy gears up for a potential recession, the space for consumer credit is starting to shrink.
Next Week:
U.S. leading economic indicators will be reported next week, and this indicator highlights trends in the broader U.S. economy. The U.S. leading economic indicator (LEI) reported down -0.7% last month, and this upcoming report is forecasted to come in at -0.6% The LEI has seen a contraction in the last 14 months, and analysts forecast this trend to continue predicting a plausible recession in mid-2023.
Besides U.S. leading economic indicators next week is a relatively light week in terms of market events. However, Industrial Production will also be released next week. The Industrial Production Index, which is released by the Federal Reserve, reports the change in the U.S. industrial production output. The last report indicated a -0.2% decrease, and this upcoming report is forecasted to come in at 0 flat.
Market Snapshot:
Financial markets were driven by cooling inflation data this week. The Gross Surprise Index reached another cycle high supported by sentiment and labor market indicators. This led to a dovish reaction in interest rate, with expectations going from a 25bps hike then to flat to year-end, and then beginning to expect a rate cut by 2024. This dovish positioning drove the dollar down and everything else up. In the stock market, the Nasdaq and small caps outperformed, but all major indexes rose sharply, with the Dow and S&P making gains of more than 2% for the week. Treasury yields fell sharply during the week, and the longer term yields underperformed. The yield curve steepend significantly this week. The dollar index has fallen in 5 of the past 6 days, marking the second big weekly (-2%) decline since March 2020. Bitcoin pushed around $32,000 on Wednesday and then fell back to around $30,000 today. Silver rallied this week, significantly outperforming gold. Crude Oil traded above $77 this week, breaking out of its two-month high, before disappearing slightly today.
Quip of the Week: "Price is what you pay. Value is what you get." - Warren Buffet
U.S Equities:
Indexes(Week)
SPX 4,505.42(2.42%), DJIA 34,509.03(2.29%),
NASDAQ 14,113.70(3.32%), RUT 1,931.09(3.56%)
Sectors:
As previously mentioned, the market reacted extremely well by cooling inflation data. Expectations are shifting, and the market expects the Fed to cool down rate hikes in the future. This is increasing consumer confidence, coupled with recent signs of a relatively strong job market. This improved consumer confidence led consumer discretionary to do extremely well this week, as the consumer discretionary sector is generally driven by consumer confidence in the market,
Treasuries:
2-Year Treasury Yield Plummets Following Lower-Than-Expected June CPI: Treasury yields experienced a large drop on Wednesday, following the release of the June inflation report which indicated a slowdown in rate will increase. The 2-yr Treasury yield fell by way of 15 bps to 4.742%, whilst the ten-year Treasury yield declined by over 12 bps to 3.857%. This movement is reflective of the inverse relationship between yields and inflation. The Consumer Price Index (CPI), a measure of the average change in prices paid via urban consumers for a number goods and services, rose only moderately.
Commodities:
Oil
Oil prices fall into end of the week amid rising dollar: Oil prices fell sharply on Friday, down more than a dollar a barrel. This was largely due to the rising of the dollar and oil traders deciding to book profits after a strong rally. Despite this dip, crude oil benchmarks posted their third weekly gain. Brent crude futures rose to $79.87 a barrel, down $1.49, or 1.8%, while US West Texas Intermediate crude futures fell $1.47, or 1.9%, to 75.42 a barrel dollar, the U.S. dollar index held higher after hitting a 15-month low during the session, making crude more expensive for investors holding other currencies. But it could resume rallying next week on lower inflation, plans to replenish U.S. strategic reserves, and supply cuts.
Gold
Like the rest of the market, gold benefited from the possible pause in interest rates. High interest has made the opportunity cost of gold go up, and so with a future of lower interest rates, gold becomes more feasible for investors.
Crypto:
BTC -30,301, -0.39% ETH - 1,935, 2.89%
BTC Graph (5-day)
Ripple’s XRP recently won a lawsuit against the SEC which caused it to rally by about 96%. Many consider this to be victorious for the entire crypto sector, as many are optimistic for the future of crypto as deregulation continues and crypto becomes more accessible to the average investor. The recent introduction of Bitcoin ETFs highlights this.
Europe:
Stoxx 600- 460.83, 2.95% DAX -16,105, 3.22% FTSE 100 -7,434, 2.45%
DAX Chart (5-day)
The European market’s success piggybacked off the U.S. optimism amidst rate pause hope. Tech stocks were the key drivers in the European market, with indexes like Stoxx 600 ending almost 3% up on the week. The market is currently hyper-reactive to central bank monetary policies, so this rally makes sense.
Asia:
XJO (Australia)-7,303, 3.70% Shanghai 180 Index-8,257, 1.91% Nikkei 225- 32,391, 0.01%
XJO Chart (5-day)
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