Weekly Market Update (May 29, 2022)
Stocks have swung this week. Technology stocks fell on Tuesday after a bounced back on Monday due to Social-media company Snap Inc. issued a profit warning from the digital advertising revenue.
Minutes released on Wednesday from Federal Reserve has eased investors concerns regarding the aggressive measures to control inflation. Investors believed that policy makers were in agreement for a 0.5% increase in June and July, in line with previous forecast.
Yields start to stabilize. Market has priced in 135 basis points of rate hikes over the next 3 Fed meetings, recorded on Wednesday.
RBNZ (Reserve Bank of New Zealand) lifted the OCR (Official Cash Rate, equivalent to interest rate) by 50 basis points, from 1.5% to 2%. It is expected to be aggressive in the coming meetings in the rest of the year, probably about 3.25%, in order to achieve their 1%-3% inflation target range.
“Incredible Transition”, said Joe Biden when he was talking about the exorbitant energy prices. The supply of diesel fuel in the East Coast is the lowest since 1990. Meanwhile, the US government is planning to alleviate the problem by waiving some environmental rules on gasoline to reduce pump prices.
*Data as of market close. 5-day change ending on Friday.
Confused about what happened to UST and LUNA? Here's all you need to know about the event!
VIEWS FROM THE STREET
J.P. Morgan: Fed state clearly that inflation is the highest priority.
Deutsche Bank: Expectation of rate hikes may have reached the plateau, indicated by the downward sloping fed fund futures. The market seems to shift focus from rate hikes to the decline of economic growth as the selloff in risky assets is still ongoing.
Bank of America: The Conference Board (CB) Employment Trends Index (ETI), a leading indicator for employment, is showing a slower payroll growth. The labor market shows a sign of slowing down. With a sign of disinflation, this could push the Fed to “ease off the brakes, helping risk assets find a floor in the near term”.
Deutsche Bank: The US financial condition(*) is the main concern of the Fed’s policy making. Additional financial condition tightening is going to shrink the aggregate demand, which tames inflation pressure. The probability of recession is expected to be around 50% in the coming year, stemming from the declining equities and widening credit spread.
(*): The US financial condition can be measured by the Financial Condition Index (FCI), including currency and asset prices. With the long historical relationship between financial conditions and recession risks, FCI is widely used in recession probability models.
Metals & Mining
J.P. Morgan: The continuous weakness of the China property market is giving a downward pressure on iron ore prices. The significant drop of auto production is also suppressing the growth of Metals & Mining industries.
Deutsche Bank: Stimulus continues with a rate cut of 15bps in 5Y LPR (Loan Prime Rate), supporting the property sector. The 20bps cut of mortgage rate and support to private businesses are showing how China is handling the recent economic shocks to gain back confidence.
Credit Suisse: Food prices shot up due to several reasons: 1) A quarter of the world’s highly fertile black soil is in Ukraine, which their supply has been disrupted 2) Russia lost its international trade status 3) Bad weather - droughts in US and Canada, heat waves in India 4) Restrictions on exports - India and Indonesia banned its export on wheat and palm oil respectively,
Deutsche Bank: Bearish on RMB due to the straight Zero-COVID policy and stimulus policies on its economy. 1) Capital outflows are expected to continue, with the divergence between Fed and PBoC policies. 2) Corporates tend to hold USD given the current uncertain macro environment.