Weekly market recap

Your weekly global financial market newsletter

European banks face increasing risk as they continue their operations in Russia, according to U.S. Treasury Secretary Janet Yellen. She said the U.S. is considering tougher sanctions against those banks whose actions and operations in the Russian market are helping Russia continue its war in Ukraine.
Yellen did not specify what the sanctions would be and which banks would be affected. Sanctions would only be imposed on banks if there is a real reason to do so, but she said the banks' operations in Russia create a lot of risk and banks should be very careful about what they do.
Yellen also pointed out that Russia's economy is increasingly like a war economy, making it difficult to distinguish between military and civilian or dual-use transactions.

Indices

US equity indices ended mixed and with relatively large differences last week. The DJIA index, after breaching the 40,000-point mark the previous week, posted its worst weekly performance since early April. On the other hand, the Nasdaq Composite and Nasdaq 100 technology indices reached new all-time highs. The main reason for the strengthening of the technology indices was the very good results of NVIDIA, which, as the leader in the AI market, gained 9.3% after the results. The rest of the market did not react so optomistically to these numbers, mainly due to Thursday’s macro data and the Fed’s hawkish stance.

European stocks ended the week in negative numbers, mainly due to macro data pointing to the possibility of fewer rate cuts from the ECB. The pan-European STOXX Europe 600 Index ended 0.45% lower, France’s CAC 40 Index declined 0.89%, Germany’s DAX was little changed (-0.06%) and the UK’s FTSE 100 Index slid 1.22%.

US30

-2.33%

US100

+1.41%

US500

+0.03%

GER30

-0.06%

Commodities

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.

Gold

-3.35%

Silver

-3.65%

BRENT

-2.17%

NATGAS

-4.68%

Forex

The Japanese yen continues to fall and despite stopping its decline on Friday, it has lost almost one percent against the dollar over the past week. The decline was driven on the one hand by stronger-than-expected data from the US, which once again sparked speculation about a delay in US rate cuts, and on the other hand by falling inflation in Japan. It slowed to 2.5 per cent in April from 2.7 per cent in March, while core inflation fell to 2.2 per cent in April from 2.6 per cent in March, mainly due to softer food price growth. Moreover, markets are betting that the Bank of Japan will wait to normalise monetary policy, so the popular carry trades are once again taking place on the yen, weakening the Japanese currency even further.

EUR/USD

-0.20%

USD/JPY

+0.83%

GBP/USD

+0.28%

USD/CAD

+0.39%

Macro

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.

What to watch out for this week

In the US, all eyes will be on PCE inflation, the preferred measure of inflation, which will provide valuable insights into how price pressures in the economy are developing. April inflation may have slowed, but preliminary PMI numbers from S&P Global point to rising price pressures.
Another important number will be the second estimate of first quarter GDP growth, with forecasts suggesting a slight downward revision to 1.5%. In addition, analysts will also be watching the ongoing earnings season, pending home sales, consumer confidence from the Conference Board, and regional manufacturing indexes from the Dallas Fed and the Richmond Fed. We must also not forget a few speeches from various Fed officials.
In Europe, the annual inflation rate is expected to rise to 2.5%, the highest in three months, while the core rate is forecast to hold steady at 2.7%. In Germany, the GfK consumer climate indicator is expected to reach a 12-month high.

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