Market Synopsis: Stocks Down, Treasury Yields Up, Commodities Up, Dollar Down, Crypto Down
Past Week Events:
This Week's Events:
Fed minutes indicate another rate hike is ahead: Federal Reserve Chairman Jerome Powell has raised the possibility of another rate hike in the future, as the war on inflation is far from over. Despite the Fed’s efforts to cool the economy, inflation remains a concern. Powell's comments suggest the central bank is prepared to do something else if necessary, even if it means raising interest rates in most cases.
ADP Report Shows Strong Industry Growth in June: U.S. labor market grew significantly in June, with private sector growth of 497,000, according to the ADP National Employment Report. These figures exceeded expectations and are expected to increase by 497,000 by July 2022; It represented the largest monthly increase in months. The leisure and hospitality sector led the way with 232,000 new hires, followed by manufacturing and retail, travel, and utilities. Still, wages increased in these sectors continued to decelerate, indicating that recruitment was peaking with subsequent new hires.
June payroll missed expectations, earnings growth is strong: The Bureau of Labor Statistics reported a disappointing 209,000 new jobs in June, missing economists' expectations of 230,000 and it marked its first default since April 2022. Despite the fact that unemployment remained at 3.6 % , as was the growth in hourly earnings The increase was 0.4%, which means in wages increase continued. The biggest driver of employment growth was the government sector, which added 60,000 jobs. Despite weaker-than-expected employment growth, steady wage growth means the Federal Reserve remains on track to raise the July rate.
Next Week:
CPI, Consumer Price Index, will be released next week. CPI is a key indicator of inflation, as it measures the price change of a certain basket of goods and services. Headline CPI has been declining, as the year-over-year percent change was reported at 4.0% last month. Core CPI, which excludes volatile items like food and energy, was at 5.3% year over year last month. Core CPI has remained sticky, which has been the main concern.
The PPI, closely related to the CPI, will also be released the following week. Consumer pricing changes are tracked by the CPI, whereas producer price changes are tracked by the PPI. PPI year over year was at 1.1% last month. Core PPI year over year was at 2.8% last month. Both of these economic indicators are quite important and will be eagerly awaited.
Market Snapshot:
Financial markets experienced significant volatility this week due to mixed labor market signals and the shortened holiday week. The ADP employment report was ‘hot’, and the Bureau of Labor Statistics report was ‘cold’. Despite these ups and downs, market expectations for Federal Reserve rate changes remained virtually unchanged, with July still looking like a lock for a 25bps increase In equity markets, the Nasdaq led the week but only managed to break. Defensive stocks outperformed cyclicals early in the week, but both ended around unchanged by the week's close. The Volatility Index (VIX) rose this week, marking its first weekly gain since May. The 2Y Yield ended higher for the week but bounced back sharply from 5.00%.
Quip of the Week: "Success is a lousy teacher. It seduces smart people into thinking they can't lose." - Bill Gates
U.S Equities:
Indexes(Week)
SPX 4,398.95(-1.16%), DJIA 33,967(-1.86%),
NASDAQ 15,192.75(-0.81%), RUT 1,864.66(-1.27%)
Sectors:
Different sectors saw varied results this past week, with the top performing sector utilities bringing a 1.04% increase and health care seeing the biggest loss of a 1.81%. Despite ending about flat, energy broke through on Friday, seeing gains. This was partially due to a deal between Stellantis and LG Energy Solutions finalizing to continue construction on the NextStar EV Battery Plant, and this may mean up to 15 billion in tax breaks.
Treasuries:
Treasury Yields Up: 2-Year Yield Above 5%, 10-Year Yield Above 4%: U.S. Treasury Yield Wednesday rose sharply with the ADP Industry Report. The US 10-year Treasury yield (US10Y) rose more than 4%. At the start of the trading session, the 2-Year Yield rose 15 basis points to 5.09%, while the US10Y rose 10 basis points to 4.04%. The last time the 2-Year Yield reached this level was in June 2007, and the US10Y hasn’t traded for this much since March 2023. The unexpected increase in the ADP industry report, which reported 497K against an expectation of 228K sparked a rally in yields. At the same time, initial unemployment claims rose 12K to 248K, slightly above the 245K forecast. In particular, higher US2Y yields extended the inverted yield curve to -1.05%.
Commodities:
Oil
OPEC members meet in Vienna to keep global oil prices stable: The Organization of the Petroleum Exporting Countries held a two-day meeting in Vienna, focusing on future energy production and the need to combat pressure a to reduce fossil fuel consumption. The conference titled 'Towards a Sustainable and Inclusive Energy Transition', was aimed at scrutinizing the current global energy situation, energy security and innovation OPEC Secretary-General Haitham Al Ghais stressed the need to clean up emissions emphasizing disposal without energy reduction, noting that all energy sources including renewable energy will do so will be needed in the future. The meeting came as Saudi Arabia expanded oil production by 1 million barrels a day to boost prices, while Russia announced it would cut exports by 500,000 barrels a day in August. The moves are part of efforts by key manufacturers to stabilize prices amid significant market volatility, the impact of Russia’s ongoing aggression in Ukraine and China’s slow economic recovery
Gold
Gold ended slightly positive this week. As interest rates have risen, the value of currencies has increased, putting the demand for gold down. In contrast, recent weakness in the dollar and a retreat of U.S. treasuries allowed gold to benefit.
Crypto:
BTC -30,279, -2.82% ETH - 1,867, -4.43%
BTC Graph (5-day)
Amidst the FTX mess, celebrities like Tom Brady are facing repercussions. FTX, the crypto platform that recently went bankrupt, was in a deal with Tom Brady for about 30 million in which the NFL Superstar served as an ambassador and was in commercials. Taylor Swift was also supposedly in the midst of a deal.
Europe:
Stoxx 600- 447.65, -3.09% DAX -15,603, -3.37% FTSE 100 -7,256, -3.65%
DAX Chart (5-day)
European markets saw a significant decline this past week as hawkish monetary policy intentions have been enforced in central banks. Especially in the United States, as a strong wage growth report indicates a tight labor market which means the Fed will most likely continue to raise rates. This decreased optimism in the markets.
Asia:
XJO (Australia)-7,042, -2.24% Shanghai 180 Index-8,102, -0.17% Nikkei 225- 32,388, -2.41%
XJO Chart (5-day)
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