Market Synopsis: Stocks Up, Treasury Yields Mixed, Commodities mixed, Dollar Down, Crypto Mixed
This Week's Events:
CPI shows decreasing inflation, which might deter the Fed: According to the Consumer Price Index (CPI), there was a decrease in US inflation in May. The CPI, which measures how prices for different products and services fluctuate over time, increased by just 0.1% in May, lowering the annual inflation rate from 4.9% in April to 4%. Since March 2021, this is the smallest increase year over year. Despite this decline in total inflation, core inflation, which doesn't account for the constantly fluctuating prices of food and energy, increased by 0.4% in May and remained 5.3% higher than it had been a year earlier. This shows that even while inflation pressure may be diminishing generally, consumers are still suffering its effects.
Producer Prices Take a Dip, PPI Indicates, Signalling Slower Inflation Ahead: The Producer Price Index (PPI), which tracks the average changes in selling prices received by domestic producers for their output, showed a decrease in May. The PPI fell by 0.3%, indicating that inflation at the producer level is slowing down. This could potentially signal slower inflation in the future, as changes in producer prices often lead to changes in retail prices. The annual increase in producer inflation in May was the smallest in nearly two and a half years, suggesting that inflation pressures might be easing throughout the economy, which could eventually provide relief to consumers.
Fed Holds Off on Rate Hike, but Says Two More Are Coming Later This Year: The Federal Reserve decided against an 11th consecutive interest rate increase, choosing instead to assess the impacts of the previous 10 hikes. However, the Fed projected that another two quarter percentage point increases are on the way before the end of the year. The decision to hold off on a rate hike put pressure on stocks, but the market rebounded briefly after encouraging talk on the fight against inflation by Jerome Powell, the chairman of the Federal Reserve.
Declining Goods Prices Had an Impact on Retail Sales, and Services Started to Rise: Petrol, food, new automobiles, consumer electronics, athletic goods, furniture, appliances, and cannabis products are just a few of the commodities that people may now get for less money from stores. Reduced pricing has caused a drop in retail sales since merchants receive less money as a result. Despite these price cuts, retail sales rose 1.6% from a year earlier and 0.3% from April to May. This shows that even if consumers are still making purchases, they are shifting away from buying items and towards paying for services, which are more expensive.
The S&P Global Manufacturing and Services PMI Flashes for the month will be reported. These are excellent indicators for the United States’ productivity in manufacturing and service sectors. Last month’s services PMI was at 54.9, indicating growth in the services industries. The Manufacturing PMI was still below 50 at 48.4 last month, indicating a possible contraction in the manufacturing sectors. These indicators have been on a positive trend, and so this month’s report will see if this trend continues and whether the manufacturing PMI can go above 50.
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) is down 4.4% in the past six months, with last month's report being down 0.6%. The LEI has seen contraction in the last 13 months, and analysts forecast this trend to continue predicting a plausible recession mid-2023.
Market Snapshot:
This week the financial markets were marked by a series of reversals. The S&P 500 entered a new bull market despite jobless claims hitting a 19-month high, and U.S. macro data disappointed, particularly with jobless claims. Market expectations for Federal Reserve rate changes shifted modestly towards a hawkish stance, with July pricing in almost a full rate-hike. Small Caps outperform, while Nasdaq lagged, and the Dow and S&P struggled for gains. The trend of Nasdaq outperforming the Russell 2000 ended abruptly this week, and there was a notable reversal with value stocks outperforming growth stocks for the first time since the first week of January. The Volatility Index (VIX) hit its lowest point since February 2020, Regional bank shares rose for the fourth straight week. The cryptocurrency market was mostly lower this week due to regulatory actions against Binance and Coinbase. Bitcoin hovered around $26,500, while gold rallied for the second week in a row despite volatility. Oil prices fell for the second straight week, and the dollar declined for the second week in a row.
Quip of the Week: "In the short run, the market is a voting machine but in the long run, it is a weighing machine."- Benjamin Graham
U.S Equities:
Indexes(Week):
SPX 4,409.75(3.10%) DJIA 34,300.76(1.25%) NASDAQ 13,689.57(3.25%) RUT 1,872.77(0.38%)
Sectors:
This week, practically all sectors rallied. Tech experienced the largest rally of them all, with a 4.33% increase. Jobless claims data indicated a loosening of the labor market, as claims reported higher than expected. This may be a primary reason for the Fed to pause hiking rates, and this caused the market’s perspective on inflation to shift which was a primary reason for this week’s optimism.
Treasuries:
Yield Curve inverts further on the week: Treasury yields had an eventful week due to the several major events that served as catalysts for markets. CPI and PPI data which came in earlier caused yields to rise and fall dramatically as investors processed the reports and their implications. However, with the recent decision by the Federal Reserve regarding a pause in a rate hike yield curve worsened. Longer-term rates declined while shorter-term rates rose. This was due to the fact that the Federal Reserve hinted towards two additional rate hikes in their report.
Commodities:
Crude Oil:
Iranian oil is covertly flooding the world market. Again: Despite the continued US sanctions, Iran's oil exports have increased to their highest level since 2018. The majority of this oil is transferred to China, which benefits from Iran's lower pricing by purchasing it. This surge in exports is a symbol of Iran's return to the global scene as it starts to mend fences with adversaries in the region, strengthen relationships with the dominant power in Asia, and hold flimsy diplomatic discussions with Washington. The global crude market, which is already being damaged by sluggish economic growth and an infusion of cheap Russian oil, is worried about the Iranian oil supply, too. Despite the sanctions, Iran's oil exports have doubled since last autumn to reach 1.6 million barrels a day in May. This increase in oil exports could help to bolster Iran's economy, which has been battered by rampant inflation, a plunging currency, and periodic unrest. As for the broader oil market, this could spell trouble if we see an imbalance in supply and demand caused by this recent influx.
Gold:
Gold remained pretty neutral, with a slight 0.16% decrease on the week, but throughout the week this commodity kept switching teams. As the jobless claims report came higher than expected, the week started out optimistic with investors feeling confident that the Fed will slow down their hawkish (raising interest rates) monetary policy because of a loosened labor market. This notion quickly backfired, as Fed officials reinstated the Fed’s intentions to continue to fire against inflation, believing it is still alive and well. This turn of events caused gold to go back and forth, but eventually remained neutral.
BTC 26,348(1.63%) ETH 1,723(-1.65%)
BTC Graph (5-day)
Bitcoin saw a scary dip below the key 25,000 price level this week, but quickly bounced back and regained this key level. The crypto world has seen a few scary events in terms of regulation this past year, and this has led many investors in the crypto world to proceed with caution. FTX taught the crypto world a major lesson, and now two giants Coinbase and Binance are under fire from the SEC (U.S Securities and Exchange Commission).
Europe:
Stoxx 600: 466,80(1.47%) DAX: 16,357(2.56%) FTSE 100: 7,642(1.06%)
DAX Chart (5-day)
This past week on Thursday, the ECB reiterated its intentions to continue to fight against inflation when it raised rates to a 22-year high of 3.5%. The ECB believes they will continue to raise rates indefinitely in July and most likely until September, but the future beyond that point is uncertain. They have made it clear that they will continue to hike rates if core inflation (inflation that excludes volatile sectors like food and energy) remains high, which it has remained high.
Asia:
XJO (Australia): 7,251(1.81%) Shanghai 180 Index: 8,401(1.99%) Nikkei 225: 33,706(4.47%)
XJO Chart (5-day)
Bình luận