Equity markets move below this week's new record highs as bets on Fed policy easing are scaled back following rather hawkish comments from Fed officials, creating headwinds for growth/risk assets and bonds, pushing yields (as well as USD) slightly higher after the recent decline.
European and Asian equities fell slightly, while Wall Street is little changed after hitting new all-time highs in the previous session.
Reddit shares rose in pre-market trading following the announcement of a content partnership with OpenAI. Meanwhile, the meme craze continues: GameStop and AMC Entertainment shares fell sharply after the recent surge. Shares in Swiss luxury group and Cartier owner Richemont rose ~6% on Friday after the company reported record full-year sales. Richemont has also appointed Nicolas Bos, the CEO of Van Cleef & Arpels, as the group's new CEO.
We see a typical Friday caution, but this is also due to the expectation that the Fed will keep interest rates high for longer. Swap markets are now expecting just over one rate cut in 2024 – versus expectations of 48-50bps after Wednesday's CPI data. In particular, hawkish comments from Fed officials that the Fed needs more evidence of disinflation have lowered rate cut expectations. Today will see further comments from Fed officials Christopher Waller, Neel Kashkari and Mary Daly. Fed Chairman Jerome Powell is scheduled to speak on Sunday.
With signs of a slowdown in the US economy and a slowdown in Chinese retail sales, investors are concerned that the current restrictive policy could last too long. Stagflation concerns remain as inflation has cooled but is still well above the Fed's target rate.
However, we should not underestimate the resilience of the US equity market and the psychological effect of Wall Street hitting record highs again, including the Dow Jones crossing the 40K mark. I expect modest gains in early US trading, led by the Big Tech companies, before we see more caution and probably some profit taking before the end of the week.
The overall still positive risk sentiment is also evident in commodity prices, with oil and industrial metals and cryptocurrencies supported. Gold is rising again after a slight decline in the last session and will continue to benefit from uncertainty about the outlook and further upside potential for equities.
Although expectations for a rate cut have been scaled back slightly, the market is generally anticipating a weakening of macroeconomic conditions that will ultimately help the US Federal Reserve to ease monetary policy later this year.
👁 ROB'S MARKET OVERVIEW:
May 17, 2024
🌐/🇺🇸 Global Markets ↗️/➡️ (slight gains with more caution in second half of US trading)
Cyclical / Luxury Stocks ↗️/➡️/↘️
Tech/Growth Stocks ↗️/➡️
Financial Stocks ↗️/➡️
Defensive Stocks ➡️
Energy Stocks ↗️/➡️
Materials Stocks ↗️/➡️
💱 Forex
USD ↗️/➡️ (trimming losses from earlier this week / overall, however, USD no longer bullish)
AUD, CAD ➡️ (slight headwinds from worsened risk sentiment; benefiting from higher commodity prices)
EUR, GBP ➡️
JPY, CHF ↘️/➡️
⚒ Commodity Markets ↗️/↕️
Oil prices ↗️/➡️
Natural Gas prices ↗️/↕️
Metal prices ↗️/➡️
Gold ↗️/➡️
⚡️Cryptos ↗️/↕️ (remaining in the range $64K – $67K – but soon testing the $67K)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
