After the previous day's losses, which were triggered by the expectation that the first interest rate cut by the US Federal Reserve will be postponed until December, futures on Wall Street are trading higher in pre-market US trading on Friday. Shares in Europe are also cutting their losses after yesterday's poor performance, following heavy profit-taking in New York.
Yesterday's sell-off in New York was triggered by surprisingly strong US purchasing managers' indices for the services and manufacturing sectors, which showed the fastest growth in two years – in stark contrast to expectations that economic activity would continue to cool slowly. The exceptionally strong US economic data has reduced expectations of a Fed rate cut.
We expect tech stocks to lead the gains, which are already helping the S&P 500 and the Nasdaq 100 to trade around 0.3% higher. Chip stocks such as Micron or AMD and also Nvidia are leading the gains after Nvidia again reported breakthrough results with its AI-related products. The European Stoxx 600 opened 0.8% lower but is now down 0.4%, having trimmed its losses.
The USD stabilized but is still on track for its biggest weekly gain since early April. Yields are also largely stable and are slightly below the levels reached shortly after the PMI.
Expectations of interest rate cuts continue to move the markets. The Fed meeting minutes (unsurprisingly) indicate that the FOMC is in no rush to cut rates. We are now even seeing a slight increase in rate hike expectations – which I think is unlikely, but it shows that the market is continuing to reduce expectations that the current tight situation could ease any time soon.
While we have seen a sharp sell-off, the strong purchasing managers' indices show that US businesses and consumers are robust. The expectation of lower interest rate cuts will soon be fully priced in and the focus will shift back to the predominantly good corporate earnings and solid forecasts.
I expect market sentiment to improve again today – even if higher than expected new orders for durable goods (April) could rekindle concerns about a prolonged rate hike. Expectations for new orders for durable goods (MoM) are -0.8 MoM, which leaves room for a “positive” surprise – although this would then be received negatively again.
However, markets tend to take a breather before a long holiday weekend. On Monday, Memorial Day, the US markets will be closed. UK markets will also remain closed on Monday. We are also seeing trade tensions between the US and China and heightened concerns about escalating tensions between China and Taiwan.
After a sharp sell-off/technical correction, but also due to fundamental headwinds from further lowered rate cut expectations, gold seems to have found a bottom and is likely to see some demand today ahead of the long weekend. Oil is also still trading near its lowest level in over three months. Memorial Day weekend usually marks the start of the summer driving season in the US, which is associated with increased oil/fuel consumption.
👁 ROB'S MARKET OVERVIEW:
May 24, 2024
🌐/🇺🇸 Global Markets ↗️/↕️/➡️ (trimming some of yesterday's sharp losses, but subdued movements ahead of long weekend)
Cyclical / Luxury Stocks ↗️/↕️/➡️
Tech/Growth Stocks ↗️/↕️ (tech recovering some of yesterday's sharp losses; Nvidia to provide support)
Financial Stocks ↗️/➡️ (trimming losses; banks actually benefit from higher rates for longer)
Defensive Stocks ↗️/➡️
Energy Stocks ➡️/↗️ (oversold)
Materials Stocks ➡️
💱 Forex
EUR ↗️/➡️ (after some better-than-expected economic data and recent losses)
AUD ↗️/➡️ (bouncing back from yesterday's losses)
GBP, CAD ➡️
USD ➡️ (stabilizes, but lower rate cut expectations continue to keep USD supported)
CHF, JPY ↘️➡️ (remain weakened from expectations that ECB, BoE, Fed, RBA, RNBZ may keep rates elevated for longer)
⚒ Commodity Markets ↕️
Oil prices ↘️/↕️/↗️ (limited downside potential after recent slide)
Natural Gas prices ↗️/↕️
Metal prices ↗️/➡️
Gold ↕️/↗️ (after recent sharp losses on reduced rate cut bets, gold with support in the range $2,330 – $2,340 – remains attractive medium-/long-term)
⚡️Cryptos ↕️ (Ethereum ETF approved but was fully priced in. Initial disappointment that rally does not continue then further gains likely as demand for Ethereum ETF likely strong)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
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