Market Synopsis: Equities up, Treasury Yields up, Commodities mixed, Dollar up, Crypto down
Past Week Events:
New York's Empire State Manufacturing Index sinks in May: The Empire State Manufacturing Index is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. The index is a key indicator of the health of the manufacturing sector in the state, as it measures a change in production, new orders, employment, and other indicators. The index fell to -31.8, which was significantly lower than the -3.7 consensus and 10.80 in April. The decline indicates a contraction in manufacturing activity in New York State. This did not bode well for the economy as a whole.
Chairman of the Federal Reserve Jerome Powell spoke on Friday saying that the progress on bringing down inflation is a slow one. He explained that it will take some time to bring inflation back to the central bank’s 2% target. He mentioned that the data have continued to support the FOMC’s view that bringing inflation down will be over a lengthy period. Financial markets are pricing in two 25 basis point interest rate cuts later this year, but the Fed’s projections show no cuts into 2024.
Slowing U.S. economy gets closer to recession, leading index signals: The U.S. leading economic index released this Wednesday fell 0.6% in April and declined for the 13th month in a row, indicating a potential recession later in the year. The leading economic index is a gauge of 10 indicators designed to show whether the economy is getting better or worse. The Conference Board forecasts a contraction of economic activity starting in the second quarter, leading to a mild recession by mid-2023.
PCE serves as another key measure of inflation. It is very similar to the CPI(Consumer Price Index) as it measures the prices of goods and services consumed by households, but the way it is calculated differs. The change-over-year last month saw a 4.6% increase, but this has been going down since the start of 2023. This measure will be important to test the strength of inflation.
The S&P Global Manufacturing and Services PMI Flashes for the month will be reported next week. This indicates the United States’ productivity in manufacturing and service sectors. The services flash was at 53.6 last month, and the manufacturing flash was at 50.2. A number above 50 indicates growth in that sector, and these numbers have been on a recent incline.
Market Snapshot:
U.S. stock markets closed lower on Friday as investors remained highly concerned regarding a near-term recession. Weak economic data also dented investors’ confidence in risky assets like equities. All three major stock indexes ended in negative territory. However, the week as a whole was positive for stocks. Markets were able to shrug off concerns of the debt ceiling even with talks stagnating. Furthermore, Janet Yellen’s ominous remarks regarding the banking sector that sent regional bank stocks lower did not faze stocks. Mega Cap stocks part of the Nasdaq continued to rally. Recent developments and innovation in AI have prompted investors to pile into mega cap tech stocks propping up the indices. The question is how long will this optimism last considering the ominous backdrop.
Quip of the Week: "An investment in knowledge pays the best interest."- Benjamin Franklin
U.S Equities:
Indexes(Week)
SPX 4,191.98(1.65%), DJIA 33,426.63(0.38%),
NASDAQ 12,657.90(3.04%), RUT 1,773.72(1.89%)
Sectors
The Technology sector rallied significantly on the week by over 4%. On the other hand, Utilities fell the greatest by over 4%. The tech sector has been on a tear since the beginning of the year. Excellent earnings coupled with optimism caused by AI have caused a significant surge in Mega Cap tech names like Apple and Meta.
Treasuries:
Treasury Yields were all significantly higher on the week. The short end of the spectrum greatly outperformed. The two-year treasury yield rose the most since June 2022. Banking and debt ceiling fears as well as Powell’s comments sent yields higher.
Commodities:
Oil
Oil increased this week by about 2.25% to almost 72$ a barrel. It took a beating near the end of the week as debt ceiling talks stalled. Concerns regarding the economic health of the United States spill over to oil prices very quickly.
Gold
Gold continued it trend lower up until Friday where it was able to recover slightly to about $1,980 an ounce. The run up was prompted by debt ceiling talks coming to a halt.
BTC -26,884, 1.62% ETH - 1,813.66, 1.86%
Bitcoin and Ethereum has a rather uninteresting week. Bitcoin and Ethereum moved very little despite the many headlines related to the debt ceiling and the banking crisis. It is also surprising that Bitcoin has not been rallying along side the Tech sector like it normally does.
Europe:
Stoxx 600- 468.85, 0.72% DAX -16,275, 2.27% FTSE 100 -7,756, 0.03%
Chart of the DAX (5-day)
The Eurkzone and the Bank of England have shown a continued effort to keep interest rates high until inflation slows. Looking at recent numbers, headline inflation has slowed, but they are more worried about core inflation which has shown resilience despite high interest rates. Isabel Schnabel of the ECB and Jonathan of the Bank of England expressed this consistency, stating that the labor market is tight and they will con
Asia:
XJO (Australia)-7,279, 0.31% Shanghai 180 Index-8,456, -0.02% Nikkei 225- 30,308, 4.83%
XJO 5-day Chart
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