Market Synopsis: Stocks Up, Treasury Yields Mixed, Commodities Down, Dollar Up, Crypto Up
Past Week Events:
This Week's Events:
Powell Anticipates Further Rate Hikes: Jerome Powell, the Chair of the Federal Reserve, has indicated that we may see additional increases in interest rates this year. The reason behind this is the ongoing struggle with inflation. Although inflation has shown signs of decelerating since mid-last year, it remains above the Fed's 2% target. Powell also noted that while the job market is currently robust, there are indications of it beginning to relax. More individuals are entering the workforce and wage growth is moderating. However, job vacancies continue to outnumber job seekers.
The Conference Board Leading Economic Index (LEI) for the US declined by 0.7 percent to 106.7 in May 2023: Following a decrease of 0.6 percent in April, the LEI has now fallen 4.3 percent over the preceding six months. A negative rate difference, poor loan conditions, and declining consumer expectations for business conditions are to blame for the decline. The LEI has been moving downward during the preceding fourteen months, suggesting that economic growth may be slowing down. The Conference Board forecast that between Q3 2023 and Q1 2024, the U.S. economy will contract, most likely as a result of further monetary policy tightening and reduced government spending. Despite these difficulties, the Conference Board Coincident Economic Index (CEI) for the United States rose by 0.2% in May, demonstrating that certain economic sectors are still expanding.
Next Week:
PCE price index measures how much consumers are spending for their goods and services. This data point reveals information about how inflation is affecting the market, because this data point excludes random volatility in price changes of specific goods to only specifically target inflation’s impact. This data point is very similar to CPI, and like CPI is very important to measuring inflation. PCE (year-over-year) has been on the decline, with last month's core PCE year-over-year being 4.7%. This next month is projected to decrease once again to 4.6%.
A Consumer Confidence report will be released next week. Consumer confidence indicates whether consumers are spending less or more. With inflation being high, consumer confidence is still relatively very low, but because the Fed has been hiking interest rates consumer confidence has been slowly reverting upwards. The last PCE and CPI report indicated a slight spike in inflation despite raised rates, and this may impact next week’s consumer confidence. The index fell to 102.3 last month, mainly due to consumer's perspectives of the labor market. This index is forecasted to rise to 104 in this next report.
Market Snapshot:
This week presented an unusual blend of events in the financial markets. Hawkish stances from central banks, both foreign and domestic, stirred the markets, while global macroeconomic data showed weakness. The yield curve experienced a significant drop, hinting at a potential recession, while gold prices dipped as Bitcoin reached new heights. Both the banking sector and big tech saw a downturn this week, adding to the overall market volatility. The yield curve plunged to its most inverted state this week, sending out recession warning signals. Bitcoin, on the other hand, skyrocketed to its highest point in a year. Over the week, Nasdaq recorded its largest weekly loss since March, but it was the Small Caps that bore the brunt of the week's losses. Both banks and big tech sectors saw a downturn this week, marking a first in seven weeks, with tech experiencing its largest drop since March. The U.S. dollar had a strong rally this week, marking its second-best week since February. Cryptocurrencies had a robust week, with Bitcoin outperforming Ethereum. Commodities, on the other hand, were mostly down this week as fears of recession and growth hit. Oil and Copper prices fell, and silver took a hit as precious metals dropped with the rallying dollar.
Quip of the Week: "Don't try to buy at the bottom and sell at the top. It can't be done except by liars."- Bernard Baruch
U.S Equities:
Indexes(Week)
SPX 4,348.33(1.39%), DJIA 33,727.43(-1.67%),
NASDAQ 13,492.52(-1.44%), RUT 1,821.63(-2.87%)
Sectors:
This past week no sectors ended in the positive range. This was partly due to Powell’s hawkish comments at the beginning of the week. He hinted that the Fed needs to hike rates at least 2 more times this year in order to contain inflation, this upset the market as hope for paused interest rates in the near future were crushed. Optimism in the market has yielded very positive growth the past couple of weeks, and so this negative drawback was bound to happen in the eyes of many analysts.
Treasuries:
Treasury Yields Dip Amid Fed Remarks: The yields on U.S. Treasury bonds took a downward turn as investors mulled over comments made by Federal Reserve officials about the future trajectory of interest rates, along with the latest economic figures. The yield on the benchmark 10-year Treasury note dropped by 6 basis points to 3.735%, while the yield on the 2-year note fell by 5 basis points to 4.75%. (basis point = 0.01%) Fed Chair Jerome Powell and other officials hinted at upcoming interest rate hikes, but with a less hurried approach compared to last year. Powell emphasized the importance of economic data in guiding the Fed's decisions. Fed Governor Michelle Bowman supported Powell's views, suggesting that rates need to rise further to effectively curb inflation and align it with the Fed's 2% target. Investors also took into account the latest economic data, including jobless claims figures that exceeded expectations, reporting 264,000 initial claims.
Commodities:
Oil
Middle Eastern Oil Prices Surge Amid Increased Demand from Asia: Despite global recession concerns pushing down oil prices to pre-Ukraine war levels, Middle Eastern oil prices have seen a significant increase due to a surge in demand from Asian refiners, particularly in China and Japan. This unexpected rise in demand has been influenced by heavy trading from major industry players. The surge comes as China’s reopening has brought strong demand. Regional prices are being supported by Asian refiners purchasing large quantities of barrels, like that of China's Rongsheng Petrochemical and Taiwan's Formosa Petrochemical. The surge in prices and the potential for further increases, if sellers struggle to obtain window-deliverable cargoes, could have significant implications for the broader oil market.
Gold
Gold saw a decline this past week mainly due to the fact that hawkish monetary policy intentions were retained throughout the world recently. As interest rates have raised, the value of currencies have gone up which has put the demand for gold down. Analysts are also categorizing the current gold market as bearish, and so gold is following a trend it has been in for some time.
Crypto:
BTC -30,789, 14.61% ETH - 1,894, 9.12%
BTC Graph (5-day)
The U.S approved the first Bitcoin ETF. An ETF is an extremely simple way investors can engage in the stock market, and this makes bitcoin much more accessible to new investors. Institutions like BlackRock jump started this push for Bitcoin ETFs, as they are submitting applications to launch these ETFs. This drove Bitcoin to the much longed for 30,000 level, where investors hope Bitcoin can retain.
Europe:
Stoxx 600- 453.14, -2.93% DAX -15,829, -3.23% FTSE 100 -7,461, -2.37%
DAX Chart (5-day)
The English market took a hefty hit as hawkish monetary policy intentions increased pressure on the market. People in England are still in fear of a recession, and the ECB’s hawkish monetary policy is not making anyone feel any better. This raises into question whether the ECB should soon seriously consider pausing/cutting rates.
Asia:
XJO (Australia)-7,099, -2.10% Shanghai 180 Index-8,166, -0.82% Nikkei 225- 32,781, -2.74%
XJO Chart (5-day)
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