Macro Trends
The Fed signalled just one rate cut this year, even though inflation appears to be cooling. Wall Street is captivated by AI, driving the Nasdaq 100 and S&P 500 to new highs. In contrast, European indices were negatively impacted by the rise of the far-right in European elections and the dissolution of the National Assembly in France.
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Stock Markets
In the US, the S&P 500 Index closed 1.6% higher, reaching new highs, driven by enthusiasm for artificial intelligence which continued to boost technology-related stocks and growth shares, outperforming value stocks by the largest margin since March 2023 (456bp), according to Russell indexes. The technology-heavy Nasdaq Composite surged 3.4%. Shareholders also approved Tesla CEO Elon Musk’s USD 48 billion pay package, reflecting excitement over his push for autonomous driving vehicles. In Europe, the Eurostoxx50 fell over 4% due to political uncertainty following strong performances by far-right parties in the European Parliament elections, affecting all major European bourses. Germany’s DAX Index dropped 3.0%, France’s CAC 40 Index fell 6.2% (the biggest drop since 2022), Italy’s FTSE MIB Index declined 5.8%, and the UK’s FTSE 100 Index slipped 1.2%. In Japan, the stock markets had a mixed performance, with the Nikkei gaining 0.3% for the week as the Bank of Japan’s dovish stance provided support to equities.
Fixed Income and STIRs
The latest US inflation data was welcomed by traders, as the CPI came in slightly below expectations at +3.4% year-over-year versus the expected +3.5%. The Fed meeting confirmed expectations that members anticipate a rate cut in 2024. If inflation continues to improve, Jerome Powell has not ruled out two rate cuts. This encouraging news pushed US bond yields down, with the 10-year yield now clearly below 4.33% and targeting 4.00%. In Europe, the situation is complicated by concerns over the French parliamentary elections. Despite falling bond yields, the yield differential between France and Germany is the highest since 2017. In Japan, the central bank left rates unchanged and did not reduce its asset repurchase program, with the latter part being unexpected.
FOREX Markets
The pound soared to a near two-year high against the euro, surpassing €1.1900 due to political uncertainty in France following President Macron's announcement of a snap election. This marked a significant breakout from its year-to-date range and a fifth consecutive weekly gain. Against the dollar, the pound ended the week lower despite strong UK wage growth data and a softer US jobs report. The euro was negatively impacted by political developments in France, with increased concerns over political instability and potential economic conflicts within the Eurozone. Economic data further hurt the euro, with Italy's industrial output falling by 1% in April, marking the fourth consecutive month without growth EURUSD traded below $1.0700 for the first time since early May and the dollar overall gained for the second straight week, with the US Dollar Index (DXY) reached its highest level in a month by mid-week.
Cryptocurrency
Bitcoin is struggling to regain its bullish momentum, falling 3.7% this week and dropping below the $67,000 mark. Unlike last week, when over a billion dollars were invested in Bitcoin Spot ETFs in the U.S., net outflows since Monday have totaled around $500 million, contributing to Bitcoin's price decline. Similarly, Ethereum (ETH) is down for the third consecutive week, despite speculation about the launch of Ethereum Spot ETFs this summer. ETH has fallen 5% since Monday, dipping below the $3,500 mark. Overall, the cryptocurrency market declined this week, with the total valuation of all cryptocurrencies dropping by nearly 5% to approximately $2,350 billion.
Commodities & Energy
Despite headwinds, oil prices are bouncing back energetically this week, with traders focusing on the latest US inflation data. Weaker-than-expected figures give the Fed more flexibility in easing monetary policy, which is positive news for risky assets. Regarding headwinds, the International Energy Agency (IEA) has again lowered its global oil demand growth forecasts, and weekly inventories showed a surprising rise of 3.7 million barrels. Despite this, Brent crude is trading up at around USD 82.6, while WTI is at around USD 78. In the metals market, consolidation continues in the industrial segment. Recent Chinese statistics have not sparked financial interest in metals, contributing to the lethargy in copper, which is trading at 4.4950 (spot price) in London. Nickel has also declined for the fourth consecutive week to USD 17645. Conversely, gold is holding steady, supported by falling US inflation and bond yields.
What to watch next week
Mon - Japanese Machinery Orders, Chinese Retail Sales, Italian CPI, EZ Labour Costs, US NY Fed Manufacturing, PBoC MLF, Speakers - ECB’s Lane, Lagarde, de Guindos, Cipollone; Fed’s Harker, Cook Tue - German ZEW, EZ HICP (F), US Retail Sales, Industrial Production, RBA Policy Announcement; NBH Policy Announcement, Speakers - RBA’s Bullock; ECB’s Cipollone, de Guindos; Fed’s Barkin, Logan, Kugler, Musalem, Goolsbee Wed – US Holiday, UK CPI, South Africa CPI, NZ GDP, BoC Minutes; BCB Policy Announcement, Speakers - RBNZ’s Conway Thu - Chinese LPR, US IJC, Philly Fed Index, SNB, Norges, BoE Policy Announcement, Speakers - Norges Bank Governor Bache; Fed’s Barkin Fri - Australian, Japanese, French, German, UK, EZ, US PMI, Japanese CPI, US Retail Sales, Canadian Retail Sales, Speakers - ECB’s Schnabel; Fed’s Barkin
MARKETS WEEKLY PRICING COMPARISON
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