Weekly market recap

Your weekly global financial market newsletter

  • The direction of the Bank of Japan's (BoJ) monetary policy is still quite uncertain, with even the latest BoJ meeting giving investors no definitive answers. Currently, the BoJ is buying government bonds at a volume of about 6 trillion yen per month, within a permitted range of 5-7 trillion yen.
  • No clear decision has been made yet at its meeting on Friday, but clarification on the limitation of purchases will likely be on the agenda at the July meeting. Economists are also not yet able to agree on how much it will be, but it is clear that the BoJ should start reducing its nearly $5 trillion balance sheet as soon as possible. The BoJ's rapidly weakening yen, which is driving up import prices and, in turn, raising the cost of living and hurting consumption, is likely to force the BoJ to reduce the balance sheet as soon as possible.
  • So far, the most likely scenario is curbing purchases by one trillion yen per month, but with the governor having said the size would be "significant," it could eventually go up to two trillion yen per month.
  • At the same time, it is unclear whether the BoJ will move to raise its rates, which would lead to a subsequent increase in mortgage rates, potentially having a negative effect on the already weak housing finance market. Economists say there will be an increase to 0.25% later this year, but they are divided on whether it will be in July or later in the year.

Indices

US stocks ended the week mixed. The main factor was Wednesday’s surprisingly lower-than-expected inflation, which raised expectations of early and more frequent rate cuts this year. However, the subsequent statement by the central bank chief that he expects only one interest rate cut this year put an end to the general optimism in equity markets. The DJIA blue chip index reacted the worst to this, marking the start of a downward trajectory for the index, which eventually ended the week in negative territory. Exceptionally, however, technology titles did well, helping the technology indices and the S&P 500 index to further reach new records.

Euro equities were also helped by US inflation in the middle of the week to rise slightly. However, the end of the week was very negatively impacted by nervousness over the possible snap elections in France and their outcome, with equities experiencing an outflow of funds from assets in Europe. The pan-European STOXX Europe 600 Index finished -2.39%, Germany’s DAX gave up 2.99%, France’s CAC 40 Index shed 6.23%, and the UK’s FTSE 100 Index finished 1.19% lighter.

US30
-0.54%
US100
+3.47%
US500
+1.58%
GER30
-2.99%

Commodities

The price of Brent Crude Oil was up nearly 4% for the week, its best weekly result since April. Although the price saw a slight decline on Friday due to a dip in US consumer sentiment in June, expectations of higher demand for fuel in the coming weeks helped the price to rise on the week. The U.S. EIA last week revised its estimate of oil demand growth for 2024 to 1.1 million bpd, from an initial estimate of 900,000 bpd, for most Asian countries except Japan. OPEC also expects high oil demand in the summer months due to growth in the tourism and leisure sectors.

Also, the gold price rose last week for the first time after three weeks of declines. Like other markets, gold was helped by unexpectedly mild inflation in the US, but the subsequent rise was halted by hawkish comments from FOMC members. Ultimately, however, the dovish sentiment of most other central banks that have moved to cut their rates (ECB, BoC) or are in the process of doing so (BoE or PBoC) is playing in favour of further gold price gains.

Gold
+1.71%
Silver
+1.34%
BRENT
+3.77%
NATGAS
-1.27%

Forex

The euro has been under a lot of pressure since Monday morning due to the victory of the far right in the European Parliament elections on Sunday. French President Emmanuel Macron has thus raised the possibility of early elections. On Wednesday, the European currency first strengthened significantly against the dollar after inflation in the US, as investors began to speculate again about three rate cuts by the Fed this year. However, subsequent comments from Fed officials put a damper on the optimism in the euro for good. Pessimism was then compounded by political uncertainty in Europe and the possibility of early elections in France. The euro thus ended the week at its lowest level since the beginning of May.

The Japanese yen also continued to fall, still close to its 34-year low, and does not look set to start strengthening in any significant way in the near future. The Bank of Japan left its interest rates at their current level near zero (0.10%), which was widely expected. At the same time, it said it would continue buying government bonds at an unchanged pace and would decide on a possible reduction in purchases at its next meeting. Thus, the timing of the BoJ’s balance sheet reduction hinted at by BoJ Governor Kazuo Ueda is still unknown. However, according to former BoJ board member Takahide Kiuchi, the central bank will retain government bond purchases as a tool for “fine-tuning” monetary policy in the future.

EUR/USD
-0.92%
USD/JPY
+0.40%
GBP/USD
-0.23%
USD/CAD
-0.24%

Macro

Wednesday was clearly the most important day on the calendar, with the release of US inflation data followed by the central bank’s interest rate decision. Inflation surprised by being unchanged in May after rising 0.3% in April (a 0.1% rise was expected). Core inflation slowed to 0.2% in May after rising 0.3% in April, hitting a 7-month low, with a 0.3% rise expected. On a year-on-year basis, prices then rose by 3.3%, with the same 3.4% growth expected in April. Core inflation slowed from 3.6% in April to 3.4% in May (+3.5% expected), the lowest since April 2021.

The lower-than-expected inflation data may have helped markets to rise, but investors were ultimately cooled by central bankers. While they left the interest rate unchanged for the seventh consecutive time as expected, the comments surprised markets. After inflation, everyone expected an early rate cut and three cuts before the end of the year. The hawkish statement that only one rate cut was planned this year then resulted in the opposite reaction to that brought about by inflation. Policymakers said they need several consecutive months of waning price pressures before contemplating rate cuts.

The Producer Price Index, reported Thursday, also surprised on the downside and fell 0.2%. On a year-over-year basis, core PPI fell back to 2.3%, marking an end to five consecutive months of increases. Relatively surprising then was the initial jobless claims data, which came in at 242,000, the highest reading in almost a year. The University of Michigan consumer sentiment for the US fell for a third straight month to 65.6 in June 2024, the lowest since November, from 69.1 in May and well below forecasts of 72.

Inflation in Germany rose 0.1% in May, the lowest in five months, according to final data. On an annual basis, however, inflation rose to 2.4% from a three-year low of 2.2% in April and March. Inflation thus rose for the first time since December.

The British economy stagnated in April after growing by 0.4% in March. It was the weakest performance in four months; however, in the three months ending April, it expanded 0.7% compared to the previous three months. Unemployment in the UK rose to 4.4% between February and April. It was the highest reading since the three months to September 2021.

What to watch out for this week

  • The shortened week in the US due to the Juneteenth holiday will bring quite interesting macro data despite fewer working days. A rebound in retail sales is expected on Tuesday, which should rise by 0.3% after stagnating in April. S&P Global flash PMIs will also provide a first snapshot of economic activity in June, with both manufacturing and services growth seen slowing.
  • Some data will also come from the housing market, where investors will be interested in preliminary data on building permits, housing starts, the NAHB housing market index, and existing home sales. In addition, investors will be watching for statements from central bankers, which should give clues as to whether or not they will proceed with more interest rate cuts.
  • In Europe, May inflation data will be confirmed on Tuesday, and Eurozone consumer confidence is also expected to improve for the fifth month in a row, while Germany's ZEW economic sentiment indicator is expected to reach its highest level since July 2021. Flash PMIs for June in both the services and manufacturing sectors should point to continued growth in the Eurozone and UK services sector.
  • In the UK, the Bank of England will decide on rates and is likely to leave interest rates at 5.25%. However, more MPC members are expected to lean towards a rate cut. On Wednesday, UK inflation data will come in, which is expected to fall to 2% and hit the BoE's target. In addition, there will also be interesting central bank decisions in Australia, Brazil, China, Norway, and Switzerland.
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