Weekly market recap

Your weekly global financial market newsletter

  • The ECB is expected to cut interest rates next week for the first time since 2016, but doubts about further moves beyond June increased after a hotter-than-expected inflation print. The European Central Bank will decide on rates on Thursday.
  • The ECB started raising interest rates in July the year before last in a bid to bring under control the rapid rise in inflation, which had climbed to a record 10.6%. Last October, it paused raising the key interest rate, which has stood at 4.50% to date.
  • In the course of this year, there has been a significant reduction in inflation, which has moved closer to the ECB's inflation target, which is set at 2%. In April, annual inflation was 2.4%, but according to Friday's estimate, inflation rose to 2.6% in May. This has caused nervousness in the markets and widening doubts about whether the ECB will actually proceed with the much-anticipated cut at all.
  • However, analysts still expect the scenario that the ECB will eventually proceed with the cut, only the scenario for further developments is changing. At the beginning of the year, there was speculation of a possible series of up to five rate cuts, but now the most likely scenario is that the ECB will cut rates twice. They give a third cut this year less than a 50% chance.

Indices

U.S. stocks lost ground in a holiday-shortened week, but thanks to their performance in the previous weeks, they posted a month in the green. The S&P 500 index lost for the first time after five weeks of gains, but the losses were no bigger thanks to the numbers on the PCE price index, the Fed’s preferred inflation gauge, which came in as expected. The tech Nasdaq lost the most during the week, but technology was the best performer in the monthly assessment. The Nasdaq 100 gained 7.03% for the month, the S&P 500 added 5.16% and the DJIA gained 2.07%.

European equities were similar, losing ground during the week, mainly due to higher-than-expected inflation in the Eurozone, which brought speculation of a delayed rate cut by the ECB. The pan-European STOXX Europe 600 Index ended 0.46% lower, France’s CAC 40 Index dropped 1.26%, Germany’s DAX declined 1.05% and the UK’s FTSE 100 Index lost 0.51%. For the whole of May, they ended up posting gains, although the differences were quite significant. The STOXX Europe 600 gained 2.63%, the FTSE 100 added 1.61%, the DAX was up 3.16% and the CAC 40 gained 0.10%.

US30
-0.98%
US100
-1.44%
US500
-0.51%
GER30
-1.05%

Commodities

Information on inflation in the US and Europe also had a slightly negative effect on the gold price, which recorded a weekly decline as a result. However, the planned rate cuts by the ECB and subsequently by the Fed should not be threatened. Despite the steep fall from all-time highs, gold gained 1.8% for the month, strengthening for the fourth month in a row. Compared to silver, which, unlike gold, finds a much wider use in the industrial sector, gold did not fare so well. Although silver is still quite far from its all-time highs, its price has been rising quite significantly recently, and in May alone its price rose by more than 15%.

The price of US Natural gas has had another volatile week. It briefly came close to six-month highs of around $2.9/MMBtu again during the week, but eventually dipped all the way below $2.6/MMBtu. It thus notched up a 7% loss over the past week, again due to rising inventories, which rose by 84 bcf over the course of the week, beating expectations by 15%. For the month as a whole, however, the US natural gas price, despite falling over the past two weeks, rose by more than a third (+33.49%).

Gold
-0.27%
Silver
+0.22%
BRENT
-0.99%
NATGAS
-7.00%

Forex

The clear loser for the month of May among the major currencies is the US dollar, which thus broke the streak of four months in the green numbers. The Greenback lost ground against all currencies, even the Japanese yen, as the USDJPY currency pair was close to 158 yen per dollar again in early May shortly after the BoJ intervention. Thus, investors are pricing into the dollar a scenario where there will be two interest rate cuts before the end of the year. Thus, markets are currently pricing in an average 37 basis point rate cut in 2024. This development is somewhat surprising given that statements by some Fed officials have sounded more hawkish in recent weeks, and some have even considered a possible rate hike if inflation does not start to fall significantly.

EUR/USD
+0.00%
USD/JPY
+0.23%
GBP/USD
+0.04%
USD/CAD
-0.27%

Macro

The main news that significantly affected market action was on Friday, when the US core PCE price index, the Federal Reserve’s preferred gauge to measure inflation, was released. Month-on-month growth in April was 0.2%, following a 0.3% rise in March. This is the lowest reading so far in 2024 and was also below expectations of a 0.3% rise. The headline gauge was up by 0.3%, the same as in March and February. Also, the annual PCE inflation remained at 2.7%, matching a 4-month high hit in March

Consumer confidence in the United States, according to a survey by the Conference Board, surprisingly increased in May after the previous three consecutive monthly declines. According to the survey, consumers are more optimistic about the job market, but remain concerned about high inflation and interest rates.

The U.S. gross domestic product grew at an annualized rate of only 1.3% in the first quarter, compared with 3.4% growth in the previous three months. This is according to the second revised estimate released by the US Commerce Department on Thursday. In last month’s flash estimate, the department said growth slowed to 1.6% in the first quarter, and that news was already surprising to analysts.

The number of new claims for unemployment benefits in the United States rose to 219,000 in the week ending May 25 from 216,000 in the previous week (revised from 215,000); a rise to 218,000 was expected. Pending US residential sales fell 7.4% y/y in April (March: +0.1%) and declined 7.7% m/m (estimate: -0.6%, March: +3.6%).

The euro area inflation rate rose for the first time in five months to 2.6% in May from 2.4% in April. Eurostat, the statistics office, said this in a flash estimate on Friday. Services and food in particular became more expensive, but energy again contributed slightly to the overall increase. Analysts had expected inflation to rise, but on average they expected it to reach only 2.5%. On a month-on-month basis, prices in the euro area rose by 0.2%, with a 0.4% increase excluding the impact of energy. Energy alone was 1.2% cheaper than in April.

What to watch out for this week

  • The first week of June will be devoted to the monetary policy meeting of the European Central Bank on the old continent and to labour market statistics in the United States. The ECB is expected to cut interest rates by 25 basis points on Thursday, with analysts also keeping a close eye on a statement from central bank chief Christine Lagarde, which should make it clearer whether this will be a one-off move or a longer cycle.
  • On Friday, markets will then await the nonfarm payrolls report in the US, which should give an answer to the question whether the labour market is still strong or if there is a gradual cooling. Analysts expect the US economy to have created 185,000 jobs, a slight increase from the previous month. We should get a hint during the week in the form of JOLTs Job Openings and ADP Nonfarm Employment Change.
  • In addition, later in the week we'll see final data and Purchasing Managers' Indexes from S&P in the Eurozone, Germany and the UK, as well as in the US, where ISM data will also tell us something about private sector growth. In addition, later in the week, Eurostat will publish final GDP growth data for the Eurozone.

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