Weekly market recap

Your weekly global financial market newsletter

  • After the ECB cut interest rates by a quarter of a percentage point last week as planned, markets will wait to see how the US Fed will approach the next monetary policy stance. Perhaps the biggest certainty remains, leaving rates in a range of 5.25 - 5.50%. However, the central bankers' next moves are not so certain.
  • Not long ago, the Fed was expected to raise rates several times this year; today, the most likely scenario is one hike, in November at the earliest. This is also why much attention will be paid to the Summary of Economic Projections (SEP) and the Dot Plot.
  • Fed Chief Jerome Powell's post-meeting press conference will receive a lot of attention. A rather neutral tone is generally expected, but the fact that inflation data will be published on the same day, Wednesday, which may change the tone of the press conference quite substantially, adds spice to everything.
  • It may be that weaker inflation data will lead to the return of the possibility of up to three rate cuts before the end of the year, but too strong inflation may, on the other hand, move Powell's statement in a hawkish direction, which may indicate the aforementioned one cut or even none at all. Get ready for an interesting ride.

Indices

US stocks ended in the green again after a bad week the week before. The mixed macro data, especially on Monday and Friday, influenced the markets quite significantly. Technology, financial titles and the industrial sector fared particularly well, with growth stocks outperforming value stocks in the strongest way since the beginning of the year. Both the S&P 500 and Nasdaq indexes posted intraday all-time highs, but Friday’s labour market data again led to speculation about a possible postponement of Federal Reserve rate cuts.

The ECB’s rate cut did not have a very strong impact on the equity markets as the central bank’s move was priced in and ECB chief Christine Lagarde did not provide much hint at the subsequent press conference. The pan-European STOXX Europe 600 Index ended 1.04% higher, Germany’s DAX tacked on 0.32%, and France’s CAC 40 added 0.11% and the UK’s FTSE 100 Index slipped 0.36%.

US30
+0.29%
US100
+1.32%
US500
+2.50%
GER30
+0.32%

Commodities

Gold continued to fall to monthly lows. It finally gave back all its gains from earlier in the week on Friday, when news first came that the People’s Bank of China had suspended all its purchases of the precious metal since May, ending an 18-month buying spree. China’s central bank is one of the biggest buyers of gold, steadily stocking up bullion since 2022. China held 72.80 million troy ounces of gold at the end of May. Then in the afternoon, better-than-expected US labour market reports pushed the price even lower. The stronger labour market data actually tempered expectations of an early interest rate cut by the Federal Reserve and has attracted buyers to the US Dollar, which is not good for the gold price.

US natural gas, after two weeks of declines, has once again posted a stronger weekly gain, reaching as high as 3/MMBtu. The gas price rose even though the EIA reported a bigger-than-expected storage build and US utilities added 98 billion cubic feet of gas into storage last week, above market expectations of an 89 bcf increase. But a recent slump in output and forecasts of very warm weather in June eventually pushed the price higher. US gas production is down about 9% in 2024 as energy firms like EQT and Chesapeake Energy delayed well completions and reduced drilling when prices fell earlier in the year.

Gold
-1.46%
Silver
-4.12%
BRENT
-2.00%
NATGAS
+13.51%

Forex

The dollar has been one of the winners in the currency market over the past week after the stronger employment data has attracted buyers to the Greenback. In fact, the strong data is leading investors to believe that the Fed may postpone its intention to raise interest rates until a later date, which is obviously good news for the dollar. The markets are now expecting at most one rate cut before the end of the year, which is not expected until November at the earliest.

The dollar also benefited from a sharp fall in the euro, which lost ground due to uncertainty ahead of the European Parliament elections. There were even reports over the weekend that French President Emmanuel Macron has called snap parliamentary elections after a significant loss to the National Rally party led by Marine Le Pen. However, further uncertainty, which should play in the euro’s favour, could be introduced into the markets by European Central Bank (ECB) policymaker Robert Holzmann, who said it was too early to think about further rate cuts. Holzmann also reminded that if the Fed did not also cut rates, it would have an impact on the euro exchange rate and inflation.

EUR/USD
-0.42%
USD/JPY
-0.34%
GBP/USD
-0.21%
USD/CAD
+1.01%

Macro

The main news that had the biggest impact on the markets was Friday’s news from the US labour market. Nonfarm payrolls increased by 272K in May, surpassing the 185K estimate and April’s 175K gain. The reading is also higher than the average monthly gain of 232K over the prior 12 months and 246K in the first 4 months of the year. Data for March was also revised lower. With the March and April revisions combined, employment is 15K lower than previously reported. The unemployment rate in the United States rose to 4% in May 2024, the highest since January 2022, up from 3.9% in the previous month.

Meanwhile, previous reports from the markets regarding the labour market were not as optimistic. According to ADP, private businesses in the US added only 152K workers to their payrolls in May 2024, the fewest in four months, and well below forecasts of 175K and a downwardly revised 188K in April. And the number of job openings declined by 296,000 from the previous month to 8.059 million in April 2024, the lowest level since February 2021 and missing the market consensus of 8.34 million.

Also at the start of the week, the news was rather negative as data from ISM on Monday showed that its gauge of manufacturing activity had fallen further into contraction territory (down from 49.2 to 48.7, expectations of 50). On the other hand, data related to the services sector came in well above expectations as ISM’s services PMI jumped to 53.8 in May, its highest level in nine months and well above consensus expectations (previous 49.4, expectations 51.0).

In Europe, the most anticipated news was the ECB’s rate cut, which the central bank took for the first time since 2016. While the ECB did confirm the need for a rate adjustment in its statement, we learned virtually nothing from ECB chief Christine Lagarde’s press conference about the future direction of monetary policy or a possible further rate cut. The ECB did revise its inflation outlook and inflation according to it would average 2.5% in 2024, an upward revision from the previous estimate of 2.3%.

The third estimate of Eurozone GDP then just confirmed the numbers from the previous estimates. The eurozone economy expanded 0.3% on quarter in the first three months of 2024, recovering from a 0.1% contraction in the previous quarter. From the corresponding quarter of the previous year, GDP expanded by 0.4%, in line with preliminary estimates.

What to watch out for this week

  • The strongest day of the new week will definitely be Wednesday, when we will first see appetizers in the form of British GDP and German Inflation. The former is expected to fall from 0.4% to 0.0% on a monthly basis, while German prices are expected to slow on a monthly basis but accelerate on a year-on-year basis from 2.2% to 2.4%.
  • Later we will then see inflation data in the US, where the annual inflation rate is expected to remain at 3.4%, while the core rate may decrease slightly to 3.5%, a fresh 3-year low. Compared to the previous month, the headline CPI is predicted to rise at a slower 0.2%, while the core CPI is seen steady at 0.3%.
  • Interestingly, the FOMC will be deciding on monetary policy settings on the same evening, with first-hand inflation data (they will get it the day before). Rates are expected to remain unchanged, but higher than expected inflation is expected to lead to more hawkish statements from central bankers and lower than expected numbers are expected to lead to more dovish settings.
  • Other key data to monitor throughout the week include the US PPI, export and import prices, and the preliminary reading of the Michigan consumer sentiment. Of interest will be inflation data from China, or the rate decision from the Bank of Japan, which is also expected to leave rates unchanged.

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