Market Synopsis: Equities Up, Treasury Yields Mixed, Commodities mixed, Dollar Down, Crypto Down
Past Week Events:
This Week's Events:
Weekly Jobless Claims in the US Rise More than Anticipated: Last week saw a rise in unemployment claims from Americans not seen in more than 1.5 years. For the week ending June 3, initial claims for state unemployment insurance increased by 28,000 to a seasonally adjusted 261,000, which is the highest level since October 2021. Ohio, Minnesota, and California saw increases that were the main causes of this rise. Economists warn against making assumptions about the most recent increase, attributing it to the fluctuation of claims from week to week and the most recent wave of widespread fraud in Massachusetts. The Federal Reserve is anticipated to maintain its policy rate on Wednesday for the first time since March 2022, despite the rise in claims.
Consumer Credit in U.S. Hits Five-Month High: April turned out to be a strong month for consumer credit in the U.S., with a total increase of $23 billion, just slightly more than the $22.8 billion rise we saw in March. This marked the quickest pace of growth since last November, pushing the annual growth rate to 5.71%, a hair above the revised 5.69% from March. Diving into the details, revolving credit, which includes credit cards, climbed by 13.2% in April, a touch less than the 14.6% leap we saw in March. Meanwhile, nonrevolving credit, covering things like auto and student loans, rose by 3.2%, outpacing March's growth rate of 2.7%. Economists are keeping a close eye on these trends, as consumer spending is a key driver of the economy. Despite some jitters about a potential credit crunch following the collapse of Silicon Valley Bank and a few other regional banks, the sentiment is that consumers are showing resilience and are ready to spend.
CPI, Consumer Price Index, will be released next week. CPI is a key indicator of inflation, as it measures the change in prices of a certain basket of goods and services. Headline CPI has been on the decline, as the year over year percent change was reported at 4.9% last month. To compare it was at 6.4% during the January 2023 report. Analysts predict it to continue to drop, with a forecast being 4.0%. Core CPI is also projected to see a decline.
The PPI, which is 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. Both of these economic indicators are quite important and will be eagerly awaited.
The market will also be quite eager for the fed interest rate decision which comes out on Wednesday. The last decision was a 25bps hike, differing from the many previous 50bps hike. Many are expecting the Fed to either maintain the interest rate where it is or only a mild 25bps hike.
Market Snapshot:
This week in the financial markets was 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 outperformed, 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: "The market can stay irrational longer than you can stay solvent."- John Maynard Keynes
U.S Equities:
Indexes(Week)
SPX 4,298.86(0.39%), DJIA 33,876.78(0.34%),
NASDAQ 13,259.14(0.14%), RUT 1,865.71(1.90%)
Sectors
This week, sectors were split with half ending in the green and the other half in the red. Consumer discretionary was the top performer rising about a half percent. Materials was the laggard down almost a percent. The outperformance of Consumer Discretionary indicates a rather optimistic mood by investors.
Treasuries:
Treasury Yields were all over the place this week. It was a very volatile week with yields turning red mid week but shooting back into the green by the end of the week except for the 30 year. Short term yields outperformed.
Commodities:
Oil
Concerns about demand cause oil prices to drop this week. On Friday, oil prices dropped by more than a dollar per barrel, marking a second straight weekly dip. This decline was primarily related to China's dismal statistics, which raised questions about demand growth, and Saudi Arabia's weekend decision to reduce output. U.S. West Texas Intermediate crude declined by 1.6% to $70.17 per barrel, while Brent crude futures dropped by 1.5% to close at $74.79 per barrel. Following a media article speculating an impending U.S.-Iran nuclear deal that would enhance supply, both benchmarks dropped more than $3 on Thursday. Prices did, however, modestly increase when both nations refuted the news. The market's focus now shifts to the U.S. Federal Reserve's policy and its potential impact on Saudi Arabia's next steps.
Gold
Gold Dips but Set for Weekly Rise on Fed Rate Pause Hopes: Gold prices experienced a slight dip on Friday due to a stronger dollar and higher yields. However, the precious metal is set for its best week since early May, thanks to weaker jobs data that bolstered bets for the Federal Reserve to hold steady on interest rates next week. Spot gold fell 0.3% to $1,961.39 per ounce, but it is headed for a 0.7% weekly climb, helped by a 1.5% jump on Thursday after a surge in U.S. weekly jobless claims. The market is now pricing in a 72% chance of the Fed standing pat next week, but odds of a hike in July were 67%. Traders are now bracing for the U.S. inflation report for May due on Tuesday, a day before the Fed announces its policy decision.
BTC -26,476, -2.66% ETH - 1,836.28, 3.64%
The major crypto coins like Bitcoin and Ethereum were essentially flat on the week down about 2-3 percent. Solana, however, took a massive dump dropping almost 20%
Europe:
Stoxx 600- 460.01, -0.46% DAX -15,949, -0.63% FTSE 100 -7,562, -0.59%
Chart of the DAX (5-day)
As French food prices have reached very high levels, shoppers have felt direct impacts of this on their cost of living. In an attempt to mitigate this conflict, the government and Finance Minister Bruno Le Maire are making food companies cut prices. If they do not follow through the government promises repercussions.
Asia:
XJO (Australia)-7,122, -0.32% Shanghai 180 Index-8,237, -0.05% Nikkei 225- 32,265, 2.35%
XJO 5-day Chart
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