Weekly market recap

Brent Crude Oil, despite strengthening on Friday, lost over two per cent during the week. Macro data also had an impact here, again reducing the likelihood of interest rate cuts. Indeed, according to the minutes released on Wednesday evening, some FOMC members expressed a willingness to raise rates in the event of high inflation. Higher rates could thus mean a worsening of the economic growth outlook and thus a reduction in demand for oil. In addition, according to EIA data, there was a surprising increase in US crude inventories last week, with stockpiles at Cushing, Oklahoma reaching the highest level since July. Supporting the oil price, on the other hand, was US petrol demand, which reached its highest level since November. Further developments will thus depend on the outcome of the rescheduled OPEC+ meeting on 2nd of June, which will discuss a possible extension of production curbs by major producers.

After three weeks of growth, the price of US natural gas also fell. During the week, the price briefly broke the $2.9/MMBtu level, the highest since last November, but by the end of the week the price had fallen by more than 4.5%. The main reason for this is the supply overhang and increased production, which has increased by 1.5 bcf/d since May 1st, when it reached a 15-week low, as some producers began producing more gas in response to higher prices. Also, the latest EIA report showed that gas inventories are 28.8% above the five-year average as US utilities added 78 billion cubic feet (bcf) of gas into storage last week, compared with market expectations of an 84 bcf increase.

As mentioned, the macro data published at the end of the week are again leading to growing speculation that the US Federal Reserve will wait longer than the markets anticipated to raise rates. Already on Wednesday, the FOMC meeting minutes were published, which showed that policymakers were concerned about rising inflation and some even mentioned a possible rate hike to prevent inflation from rising further.

Thursday’s purchasing managers’ index data from S&P Global then pointed to a further resumption of growth in the US. The composite index of business activity had jumped unexpectedly to 54.4 (forecast 51.1) in May, its highest level in just over two years. The acceleration was particularly evident in the service sector (54.8 vs forecast 51.2), which accounts for the bulk of it, with manufacturing activity increasing only slightly.

On Friday, the data was then supported by durable goods orders excluding aircraft and defence orders, usually taken as an indicator of business capital investment, which rose by a better-than-expected 0.4% in April after being more or less flat in the first three months of the year. By contrast, housing market data from Wednesday and Thursday on new and existing home sales remained below expectations.

Wednesday’s data from the UK showed that inflation in the UK slowed less dramatically than expected from 3.2% to 2.3%, the lowest in almost 3 years. Core inflation, which excludes volatile energy and food prices, also surprised on the upside at 3.9%. Of course, this also raises market hopes for a mid-year rate cut.
Also in the Eurozone, preliminary PMI data for May surprised as the composite purchasing managers’ index for May came in at a 12-month high of 52.3, up from 51.7 in April. Services activity remained firmly in expansionary territory, although it was slightly below market expectations. Manufacturing PMI improved but remained at contractionary levels for the 14th consecutive month.