Market Synopsis: Equities Mixed, Treasury Yields up, Commodities mixed, Dollar up, Crypto Unchanged
Past Week Events:
The latest Purchasing Managers' Index (PMI) survey from S&P Global showed that business activity in the United States reached its highest level in 13 months in May, rising to 54.5 and indicating expansion. However, the gap between manufacturing and services continues to widen. The S&P Global US Composite PMI increased to 54.5 in May 2023, up from 53.4 the previous month and much higher then the 50 predicted. The S&P Global US Services PMI rose from 53.6 in April to 55.1 in May, above market estimates of 52.6. Services activity grew at it's quickest pace in almost a year, with companies attributing the increase to higher customer demand. The May S&P Global Flash US Manufacturing PMI was 48.5, down from 50.2 in April and below the expected 50. New orders fell the fastest in three months as demand decreased.
Minutes of the Federal Reserve’s May policy meeting show that officials were divided over the path forward. At their meeting, the Fed hiked it's benchmark interest rate by a quarter of one percentage point to a range of 5%-5.25%. The central bank also altered it's forward guidance to indicate it could pause at their next meeting. Several Fed officials said that if the economy evolved as they expected “then further policy firming after this meeting may not be needed.” Only “some” officials said that they thought additional policy firming was “likely.”
Despite fears of a recession, incoming data continues to point to an economy that's growing. On Thursday, revisions to first quarter economic data showed the economy grew faster then initially expected despite inflation coming in higher then first noted. In the labor market, revisions resulting in part from fraudulent data in Massachusetts show jobless claims aren’t piling up as previously anticipated. The spending picture is adding up to what could be another quarter of growth, according to the Atlanta Fed which projects second quarter GDP growth of 2.9%.
Inflation stayed stubbornly high in April, potentially reinforcing the chances that interest rates could stay higher for longer. The personal consumption expenditures price index, which measures a variety of goods and services and adjusts for changes in consumer behavior, rose 0.4% for the month excluding food and energy costs, higher then the 0.3% Dow Jones estimate. On an annual basis, the gauge increased 4.7%, 0.1 percentage point higher then expected, the Commerce Department reported.
The potential for an upcoming recession is suggested by Wednesday's release of The US Leading Economic Index which declined by The leading economic index measures 10 indicators to show if there's an improvement or decline in the economy. Starting from the second quarter of this year till mid 2023 there will be a contraction of economic activity leading towards mild recession as predicted by The Conference Board.
The U.S unemployment rate will be reported next week. The unemployment measures how many people are currently unemployed who are looking for jobs. The unemployment rate has remained very low, in which it is at 3.4% currently. Nothing major is forecasted to occur, and it is expected to stay around this percentage.
U.S consumer confidence will come out next week as well. The index fell from 104.0 to 101.3 in the last report. Being said, consumer confidence is going down, and main contributions to this is the disputes over the debt ceiling and the lingering conflict of inflation.
Market Snapshot:
The U.S. stock markets performed inconsistently throughout the past week. A snapshot of 30 significant U.S. corporations called the Dow dropped by 1%. The Nasdaq, on the other hand, which is known for its heavily tech-heavy makeup, increased by more than 5.5%, partly as a result of optimism in AI and major IT companies. Expectations of a more aggressive approach, or "hawkish repricing," of the short-term rate curve, which is essentially a graph displaying interest rates of bonds with comparable credit quality but different maturity dates, increased as inflation, the rate at which prices grow over time, remained high. Markets remained mostly unmoved despite the fact that there was no deal on the debt ceiling, the maximum amount of money the United States government is permitted to borrow. While other industries underperformed, the technology industry performed well. Treasury rates, which represent the return on investment for U.S. government bonds, have been very volatile, resulting in the most inverted yield curve since the height of the SVB crisis. While Bitcoin's price stayed stable, the dollar increased in value for the third week in a row.
Quip of the Week: "October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."- Mark Twain
U.S Equities:
Indexes(Week)
SPX 4,205.45(0.32%), DJIA 33,093.34(-1.00%),
NASDAQ 12,975.69(2.51%), RUT 1,773.02(-0.04%)
Sectors
This week, Tech clearly outpaced all other industries, with only consumer discretionary and Communication joining Tech in the green. Staples and Financials were the weakest as all other sectors were in the negative for the week. AI Euphoria seems to be the major driver of this market right now as evidenced by Tech’s massive run up.
Treasuries:
Treasury Yields were all significantly higher on the week. The short end of the spectrum greatly outperformed. The 30 Year treasury was the duration that moved the least this week almost unchanged.
Commodities:
Oil
Prices on the oil market increased this week as U.S. authorities looked to be near to negotiating a debt ceiling agreement. In addition, conflicting supply-related comments from Saudi Arabia and Russia before of the subsequent OPEC+ policy meeting had an impact on the market. U.S. West Texas Intermediate closed up 1.2% to $72.67 per barrel, while Brent crude closed 0.9% higher at $76.95 per barrel. With Brent jumping 1.7% and WTI rising 1.6%, both benchmarks saw increases for a second consecutive week.
Gold
Gold tumbled lower on the week by about one and a half percent to about $1,944.30 an ounce. Debt ceiling concerns which had driven the price up seem to be waning.
BTC -26,739, -0.36% ETH - 1,831.76, 1.05%
Two well-known cryptocurrencies, Bitcoin and Ether, displayed a slight divergence in the last full week of May. Bitcoin prices were basically unchanged from last Friday, hovering around $26,700. This stability persists despite ongoing debates about the debt ceiling and inflation concerns. Ether, on the other hand, only gained a meagre 1.5%.
Europe:
Stoxx 600- 461.41, -1.59% DAX -15,983, -1.79% FTSE 100 -7,627, -1.67%
Chart of the DAX (5-day)
England still has one of the highest inflation rates in the Western World, with only Austria being higher in Western Europe. This has continued the pressures on the Bank of England policymakers, as the policymakers are now expected to continue to raise rates in a way not previously expected. There are multiple conspiracies for why England is being so heavily affected, with one being that Brexit is causing these conflicts.
Asia:
XJO (Australia)-7,154, -1.71% Shanghai 180 Index-8,238, -2.59% Nikkei 225- 30,916, 0.35t%
XJO 5-day Chart
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