Market Outlook Week 08-12 May

Global markets finished the week mixed

The global markets started the week mixed after the jobs-report rally on Friday. Without any major economic data in the calendar on Monday and Tuesday, the clear headliner of this week was Wednesday’s release of the US CPI reading. Specifically, the annual inflation in the United States clocked in at 4.9% in April, edging down slightly from March’s figure of 5%. Moreover, on Wednesday, Germany’s Consumer Price Index (CPI) stood at 7.2% on a yearly basis in April as expected. The stock markets on that day closed mixed as the inflation is still elevated, above the 2% target level. Also, the president of the European Central Bank Christine Lagarde and Bundesbank’s head Joachim Nagel both confirmed that the Eurozone’s main financial institution will introduce more raises of interest rate in the future to combat inflation. On Thursday, the Bank of England’s (BoE) Monetary Policy Committee (MPC) announced an increase in key interest rates by a quarter percentage point to 4.50%, the highest level in 15 years. Also, on the same day, the US PPI index came out better-than-expected, showing a 0.2% monthly gain. Lastly, on Friday the United Kingdom’s gross domestic product (GDP) rose by 0.1% in the first quarter of 2023, however, the global markets closed the week mixed, after fears of dept limit crisis in the US. The Dow Jones closed flat at the closing bell on Friday. The S&P decreased by 0.16%. Furthermore, the DAX gained 0.50%, CAC 40 rose by 0.45% and the FTSE 100 advanced by 0.31%. In addition, investors are looking forward to the Eurozone Consumer Price expecting an increase to 7.0% from 6.9%

Treasury yields advanced towards the end of the week

Yields started the week higher as investors braced for key inflation data slated for release this week. Yields in the middle of the week fell after the latest CPI report showed inflation rose in April. Month on month, the Consumer Price Index (CPI) was up by 0.4%. However, yields increased on Friday after investors digested this week’s inflation data and assessed what it could mean for the future of the economy and Federal Reserve monetary policy. Specifically, on Friday, the yield on the 2-year Treasury increased to 3.994%. Short-term rates are more sensitive to Fed rate hikes. The 10-year Treasury yield, hit 3.459%, up by about 6.4 basis points. The 30-year Treasury yield, which is key for mortgage rates, hit 3.7770%. The spread between the US 2’s and 10’s advanced to -53.5bps, while the spread between the US 10-Yr Treasury and the German 10-Yr bond (“Bund”) advanced to – 121.5bps.

Volatile week for USD

The US Dollar at the start of the week was higher following higher US Yields. In the middle of the week after Consumer Price Index (CPI) ticked lower in April to 4.9% from 5% in March, the US dollar dropped. On Friday, the US dollar finished strong following a US Yields increase despite evidence of slowing inflation and easing labor market conditions in the US. The EURUSD dropped below 1.0850, while the GBPUSD decreased to 1.2450. Additionally, the USDJPY raised to 135.70 yen on Friday.

Oil and Gold traded opposite towards the end of the week

Gold started the week flat due to sharp losses from Friday’s stronger than expected nonfarm payrolls data. Gold traded higher in the middle of the week after the United States Labor Statistics Bureau revealed that the inflation in the country slowed to 4.9% year over year, with the core inflation also cooling slightly. However, Gold traded lower at the end of the week following a stronger dollar. Prices of Oil moved higher at the start of the week, after recession fears continue to recede. However, at the end of the week oil continued to moved higher, after concerns over slowing U.S. economic growth. Meanwhile, the Crude Oil Inventories report will be released on Wednesday which is expected to show a decrease of 4.251M.

Stock indices performance